Test 2- Chapter 5-Monetary Policy Flashcards
What are the three types of monetary policy?
neutral, stimulative, restrictive
Which one of the three types of monetary policy does this describe “maintain growth, inflation, jobs as is. no change in rates”
neutral
Which one of the three types of monetary policy does this describe “corrects a weak economy by reducing Fed Funds target rate, the discount rate, and open market purchase which all lower interest rates in order to boost GDP and job growth”
stimulative
Which one of the three types of monetary policy does this describe “corrects high inflation by increasing the Fed Funds target rate, the discount rate, having open market sales. these all raise interest rates to slow GDP, slow job growth, and reduce inflation”
restrictive
What are the limitations of monetary policy?
Credit Crunch (banks don't want to lend) consumers don't want to borrow/ spend policy over/under stimulates/restrains
There are Monetary Policy complications, there are three different kinds of?
time lags
Which Lag does this describe “time between problem arising and being recognized (by the time the Fed knows were in recession, we’re already in a recession) reacting to a problem when we already have the problem”
recognition lag
Which lag does this describe “time between recognizing a problem and Fed taking action (could be a week, month, or several months)”
implementation lag
Which lag does this describe “time after Fed action for policy to have full effect on economy”
impact lag
Bond prices and bond yield have what kind of relationship?
inverse
When the interest rate goes up, bond prices?
go down
When bond prices go up, interest rates go?
down
In the next few years bond prices will likely go?
down
Are long-term or short-term bonds more susceptible to rate increases right now?
long-term
What term does this describe” used by the Fed, analysts, and market participants to assess the health of the economy”
economic indicators
What term does this describe:
rate of interest that banks charge their most credit worthy customers (usually bigger firms)
prime rate of interest
In order to get the prime rate of interest, companies have to be in ______ financial shape.
good
The prime rate of interest is the interest rate for
loans or credit
_________ banks set their own prime rates
individual
Do most banks usually choose roughly the same prime rate
yes
The prime rate generally follows Fed policy which means it follows the _____ ______ rate or the T-bill rate.
Fed Funds
Most normal customers get charged the prime rate plus some risk factor, what is the name of this interest rate?
subprime
The fiscal policy has to do with what two aspects?
taxes and spending
Who is responsible for fiscal policy
president and congress
If taxes are lowered, then there is ________ spending, which stimulates the GDP
increased
If taxes are increased, then there is ________ spending, which slows the GDP
decreased
Both president and congress must sign off on a yearly ______
budget
Sometimes the budget is used to ______ economy
stimulate
There’s many ___________ in how much to spend and who should be taxed
deficiencies
We have a budget deficit when spending is ________ than tax revenues.
greater
We have a budget surplus when spending is _______ than tax revenues.
smaller
Our federal government usually runs a ?
deficit
What is the governments primary form of getting money?
issuing bonds, T-bills and T-notes
If we have high inflation, our dollar value ______.
falls
If the dollar is weaker against the euro, it costs us _____ to buy things from Europe
more
When the US dollar is weak, even though we don’t rely on tourism, is tourism increased or decreased?
increased
There is an impact of global economics, if world growth is slow, then US policy is more or less effective
less
the transmission of interest rates either attracts or deters foreign investments. If our rates get higher, our economy looks ______ attractive to foreign investors.
more
Due to the anticipation that rates are likely to go up, money has _______ out of emerging markets.
moved
The problem with virtual currencies is they are not issued or backed by ________
government
Virtual currencies are clearly cheaper for the
merchants
Virtual currencies are subject to money laundering/illegal use and are ______ volatile in pricing.
highly
What is the result of a stimulative monetary policy on the Fed Funds rate?
lowers the Fed Funds rate
corrects a weak economy
The time it takes for a Fed policy to affect the economy is known as
the impact lag
Are decreasing interest rates good or bad for bondholders?
good, coupon will be the same, price will go down, and you will make money
How might the budget deficit be related to “crowing out”?
The government is borrowing more, therefore the pool of loanable funds decreases, which exemplifies crowding out.
