macro ch 14-17

Question 1

Balance of payments accounts

Answer 1

records economic transactions between U.S. and foreign residents both in goods and assets

Question 2

merchandise trade balance

Answer 2

measures exports minus imports in the US balance of payments

Question 3

current account

Answer 3

in the US balance of payments is a record of US merchandise exports and imports as well as trade in services and foreign transfer payments

Question 4

financial account

Answer 4

in the balance of payments is a record of purchases of US assets by foreign residents (capital inflows) and purchases of foreign assets by US residents (capital outflows)

Question 5

foreign exchange

Answer 5

a general term to refer to an aggregate of foreign currencies

Question 6

Bretton Woods system

Answer 6

was a pegged exchange rate system set up at the end of WWII

Question 7

zero-bound problem

Answer 7

confronts central banks when the nominal interest rate they use as an instrument hits a lower bound of zero; they can no longer stimulate the economy with meaningful declines in the policy rate

Question 8

time inconsistency

Answer 8

problems arise when a future policy plan is no longer optimal at a later date even when no new information has arrived in the meantime

Question 9

federal reserve system

Answer 9

composed of 12 regional Federal Reserve banks and the Board of Governors located in Washington

Question 10

M1

Answer 10

is the narrower of the two money supply measure in the US.

It consists of currency plus checkable deposits.

Question 11

M2

Answer 11

is broader and includes all the components of M1 plus some additional bank deposits that have no or only limited provisions for checks

Question 12

Federal Funds Rate

Answer 12

is the rate at which banks make loans to one another

Question 13

Board of governors of the federal reserve

Answer 13

is composed of seven members (governors) appointed by the president of the US with the advice and consent of the Senate for a term of 14 years. One member of the board is appointed chairman

Question 14

federal open market committee

Answer 14

is composed of 12 voting members: the 7 members of the Board of Governors and 5 of the presidents of regional Federal Reserve Banks.

Presidents of the regional banks serve on a rotating basis with the exception of the Federal Reserve Bank of NY, who is vice chairman and a permanent voting member of the committee

Question 15

open market operations

Answer 15

purchases and sales of government securities in the open market by the Federal Reserve

Question 16

monetary base

Answer 16

equal to currency plus bank reserve deposits

Question 17

discount rate

Answer 17

the interest rate charged by the federal reserve on its loans to banks

Question 18

required reserve ratio

Answer 18

the percentage of deposits banks must hold as reserves

Question 19

money multiplier

Answer 19

gives the increase in the money supply per unit increase in the monetary base