Final Exam Flashcards
Number of Federal Reserve Banks
12
Federal Reserve Act of 1913
Established Federal Reserve system that consists of board of governors, FOMC, and 12 Federal Reserve banks
Functions of Board of Governors
Vote on omo operations, set reserve requirement, control discount rate
Term Length of 7 Board of Governors members
14 years
Functions of Federal Reserve Banks
Vote on OMO, issue/withdraw new currency, decide which banks get discount loans
Who FOMC consists of
7 appointed board of governors plus 4 of 5 rotating FRB presidents
Functions of FOMC
Set fed funds range
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?
True
Conventional monetary tools
OMO, discount window, reserve requirements,interest on reserves
Nonconventional monetary tools
Large-scale asset purchases, liquidity provision, forward guidance, zero interest on reserves
Objective of monetary policy
Keep the monetary base stable with conventional monetary tools using tactical adjustments in the Fed Funds Rate (FFR)
Types of OMO
Dynamic, defensive
Repo Facility
OMP with seller to repurchase securities within 1-15 days
Reserve Repo Facility
OMS with buyer to sell back securities
Floating Rate
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
IOR
Interest on Reserves
Purpose of Interest on Reserves
Act like a floor for the Fed Funds Rate and creates a lower bound on the range
Time-Inconsistency Problem
Theory that MP conducted on a discretionary, day-to-day basis leads to poor long-run outcomes
Number of Inflation Targeting Advantages
4
Taylor Rule
Guiding principal in setting Fed Funds Rate
Equation for Taylor Rule
Current Inflation + Equilibrium Inflation Rate + 1/2 (Inflation Gap) + 1/2 (Output Gap)
Inflationary Gap
When actual GDP is greater than potential GDP
Does inflation targeting specifically focus on inflation
No
Is there conflict between inflation and output in the long run
No
Supply shock drivers in the short run
Change in inflation, price shocks,change in potential output, persistent output gaps
Lucas’ Critique of Rules-Based Policy
Structural shifts can cause macroeconomic models to be inaccurate
Two Types of Asset Price Bubbles
Credit-Driven, Irrational Exhuberance
Lean Approach To Handling Bubbles
Laissez-faire attitude, easy money policy that may promote financial instability
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
Three Stabilization Policies
Do nothing, activist, stabilize output
