T3 SG 1

Question 1

when was the federal government established

Answer 1

1913

Question 2

is the Fed political

Answer 2

no

Question 3

are the fed’s most powerful members elected by the public

Answer 3

no, they are appointed by the president every 14 years

Question 4

how did the Fed fail in its role during the Great Depression?

Answer 4

allowed MS to fall when should have been increasing MS; monitor economic activity in district and audits banks in their district

Question 5

the Fed Reserve oversees the US banking system and conducts monetary policy

Answer 5

True

Question 6

Monetary policy involves

Answer 6

interest rates and money supply

Question 7

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

Answer 7

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

Question 8

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.

Answer 8

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

Question 9

blank is an overnight interest rate charged on bank to bank loans

Answer 9

Federal Funds Rate

Question 10

blank is an overnight interest rate charged by the Fed to a bank

Answer 10

Discount Rate

Question 11

blank is changed when the Fed wants to signal a change in monetary policy

Answer 11

Both FFR and DR

or either

Question 12

blank is the lowest interest rate that a bank will give its best customers

Answer 12

prime rate

Question 13

blank will fluctuate during the day based on supply and demand.
If it gets out of the approved target range, the Fed will intervene

Answer 13

federal funds rate

Question 14

the most common tool used by the Fed to implement monetary policy is blank

Answer 14

Open Market Operations: OMO

Question 15

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

Answer 15

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

Question 16

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

Answer 16

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

Question 17

What are the current rates for the discount rate?

Answer 17

1.2??

Question 18

What is the current rate for the Fed Funds target rate

Answer 18

.75 to 1 increasing?

Question 19

Are these: Discount Rate and Fed Funds rate higher or lower than last year?

Answer 19

higher

Question 20

Describe the US’s current monetary policy. Are any changes expected?

Answer 20

yes, Yellin said to expect 2 more increases in interest rates this year.

Question 21

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.

Answer 21

Fed buys bonds: 
increase money supply
decrease interest rates
Fed sells bonds: 
decrease money supply
increase interest rates

Question 22

How are investment banks different from commercial banks?

Answer 22

investment banks don’t offer checking accounts to customers

Question 23

What was TARP and how was it used to try to restore faith in US banks?

Answer 23

who: Treasury
what: purchased toxic assets
when: Great Recession
authorized to buy 700 Billion toxic assets

Question 24

What was Quantitative Easing? What impact did it have on lending and the Money Supply?

Answer 24

Interest Rates at 0%
Buy massive amounts of 30 year Treasury bonds
Buy mortgaged backed securities to flood nation with dollars

Question 25

In the Quantitative Theory of Money, if V=8, the money supply is $4 trillion, then what is the amount of nominal GDP?

Answer 25

MV=PV
PY = nominal GDP
MS * V = 4 * 8 = 32

Question 26

if velocity is 5, the money supply is $800 billion, and the price level is 200, what is real GDP?

Answer 26

MV = PY
800 * 5 = PY = 200 Y
4000 = 200 Y
20 B = Y

Question 27

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)

Answer 27

velocity never changes
9% to 0% = P + 4%
p = 5% aka inflation

Question 28

when a country increases the money supply by 250% what do we expect to happen

Answer 28

inflation

Question 29

if the money supply grows slower than real GDP is growing, we expect to have

Answer 29

deflation

Question 30

the primary cause of hyper inflation is

Answer 30

excessive money growth

Question 31

discuss how hyperinflation has caused problems in Venezuela

Answer 31

no food on shelf; riots; government increased force; consumer goods hard to find

Question 32

What must be done to end hyperinflation?

What negative consequence result occurs when this is done?

Answer 32

reduce MS

recession and increase Unemployment

Question 33

If the inflation rate is 800%, in how many months will average prices double?

Answer 33

72/800 = .09 years