T3 SG 1 Flashcards
when was the federal government established
1913
is the Fed political
no
are the fed’s most powerful members elected by the public
no, they are appointed by the president every 14 years
how did the Fed fail in its role during the Great Depression?
allowed MS to fall when should have been increasing MS; monitor economic activity in district and audits banks in their district
the Fed Reserve oversees the US banking system and conducts monetary policy
True
Monetary policy involves
interest rates and money supply
To prevent or end a recession, the Fed will
blank US Treasury securities
blank the RRR, discount rate, and federal funds rate
This will blank the MS and blank interest rates
to prevent or end a recession, the Fed will buy US Treasury securities, reduce the RRR, discount rate, and federal funds rate, this will increase the MS and decrease interest rates
to lower inflation
the Fed will blank Treasury bonds
blank the RRR, the discount rate and the federal funds rate.
This will blank MS and blank interest rates.
to lower inflation,
the Fed will sell Treasury bonds,
increase the RRR, the discount rate and the federal funds rate
this will reduce the MS and increase interest rates
blank is an overnight interest rate charged on bank to bank loans
Federal Funds Rate
blank is an overnight interest rate charged by the Fed to a bank
Discount Rate
blank is changed when the Fed wants to signal a change in monetary policy
Both FFR and DR
or either
blank is the lowest interest rate that a bank will give its best customers
prime rate
blank will fluctuate during the day based on supply and demand.
If it gets out of the approved target range, the Fed will intervene
federal funds rate
the most common tool used by the Fed to implement monetary policy is blank
Open Market Operations: OMO
When the Fed buys Treasury securities from banks, this blank the banks’ excess reserves,
blank the amount of loans,
blank the banks’ demand deposits,
blank M1 and M2
When the Fed buys Treasury securities from banks, this increases the banks’ excess reserves, increases the amount of loans, increases the banks’ demand deposits, increases M1 and M2
When the Fed sells T-securities to banks,
this blank banks’ excess reserves,
blank the amount of loans, blank the banks’ demand deposits, blank M1 and M2
When the Fed sells T-securities to banks, this reduces banks’ excess reserves, and decreases the amount of loans, decreases the banks’ demand deposits, decreases M1 and M2
What are the current rates for the discount rate?
1.2??
What is the current rate for the Fed Funds target rate
.75 to 1 increasing?
Are these: Discount Rate and Fed Funds rate higher or lower than last year?
higher
Describe the US’s current monetary policy. Are any changes expected?
yes, Yellin said to expect 2 more increases in interest rates this year.
When the Fed buys bonds from banks, this will blank the money supply and blank interest rates. When the Fed sells bonds to banks, this will blank the money supply and blank interest rates.
Fed buys bonds: increase money supply decrease interest rates Fed sells bonds: decrease money supply increase interest rates
How are investment banks different from commercial banks?
investment banks don’t offer checking accounts to customers
What was TARP and how was it used to try to restore faith in US banks?
who: Treasury
what: purchased toxic assets
when: Great Recession
authorized to buy 700 Billion toxic assets
What was Quantitative Easing? What impact did it have on lending and the Money Supply?
Interest Rates at 0%
Buy massive amounts of 30 year Treasury bonds
Buy mortgaged backed securities to flood nation with dollars
In the Quantitative Theory of Money, if V=8, the money supply is $4 trillion, then what is the amount of nominal GDP?
MV=PV
PY = nominal GDP
MS * V = 4 * 8 = 32
if velocity is 5, the money supply is $800 billion, and the price level is 200, what is real GDP?
MV = PY
800 * 5 = PY = 200 Y
4000 = 200 Y
20 B = Y
if the money supply is growing by 9% and real GDP is growing by 4%, what do we expect inflation to be (ignores fiscal policy/international sector)
velocity never changes
9% to 0% = P + 4%
p = 5% aka inflation
when a country increases the money supply by 250% what do we expect to happen
inflation
if the money supply grows slower than real GDP is growing, we expect to have
deflation
the primary cause of hyper inflation is
excessive money growth
discuss how hyperinflation has caused problems in Venezuela
no food on shelf; riots; government increased force; consumer goods hard to find
What must be done to end hyperinflation?
What negative consequence result occurs when this is done?
reduce MS
recession and increase Unemployment
If the inflation rate is 800%, in how many months will average prices double?
72/800 = .09 years
