Final Exam Flashcards

1
Q

Number of Federal Reserve Banks

A

12

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2
Q

Federal Reserve Act of 1913

A

Established Federal Reserve system that consists of board of governors, FOMC, and 12 Federal Reserve banks

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3
Q

Functions of Board of Governors

A

Vote on omo operations, set reserve requirement, control discount rate

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4
Q

Term Length of 7 Board of Governors members

A

14 years

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5
Q

Functions of Federal Reserve Banks

A

Vote on OMO, issue/withdraw new currency, decide which banks get discount loans

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6
Q

Who FOMC consists of

A

7 appointed board of governors plus 4 of 5 rotating FRB presidents

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7
Q

Functions of FOMC

A

Set fed funds range

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8
Q

A single bank can create deposits equal only to the amount of its excess reserves, it cannot
by itself generate multiple deposit expansion, true of false?

A

True

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9
Q

Conventional monetary tools

A

OMO, discount window, reserve requirements,interest on reserves

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10
Q

Nonconventional monetary tools

A

Large-scale asset purchases, liquidity provision, forward guidance, zero interest on reserves

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11
Q

Objective of monetary policy

A

Keep the monetary base stable with conventional monetary tools using tactical adjustments in the Fed Funds Rate (FFR)

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12
Q

Types of OMO

A

Dynamic, defensive

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13
Q

Repo Facility

A

OMP with seller to repurchase securities within 1-15 days

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14
Q

Reserve Repo Facility

A

OMS with buyer to sell back securities

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15
Q

Floating Rate

A

Exchange rate regime where value of occurrence is allowed to be determined solely by demand for and supply of, currency on the for-ex market

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16
Q

IOR

A

Interest on Reserves

17
Q

Purpose of Interest on Reserves

A

Act like a floor for the Fed Funds Rate and creates a lower bound on the range

18
Q

Time-Inconsistency Problem

A

Theory that MP conducted on a discretionary, day-to-day basis leads to poor long-run outcomes

19
Q

Number of Inflation Targeting Advantages

20
Q

Taylor Rule

A

Guiding principal in setting Fed Funds Rate

21
Q

Equation for Taylor Rule

A

Current Inflation + Equilibrium Inflation Rate + 1/2 (Inflation Gap) + 1/2 (Output Gap)

22
Q

Inflationary Gap

A

When actual GDP is greater than potential GDP

23
Q

Does inflation targeting specifically focus on inflation

24
Q

Is there conflict between inflation and output in the long run

25
Supply shock drivers in the short run
Change in inflation, price shocks,change in potential output, persistent output gaps
26
Lucas' Critique of Rules-Based Policy
Structural shifts can cause macroeconomic models to be inaccurate
27
Two Types of Asset Price Bubbles
Credit-Driven, Irrational Exhuberance
28
Lean Approach To Handling Bubbles
Laissez-faire attitude, easy money policy that may promote financial instability
29
Clean-Up Approach To Handling Bubbles
Nearly impossible to identify in real time, raising interest rates may be effective in restraining bubbles but may negatively harm economy
30
Three Stabilization Policies
Do nothing, activist, stabilize output