Test 3 ch 11 (The federal reserve system and monetary policy)

Question 1

Federal reserve structure

Answer 1

Fed acts as the central bank for the US.

• US is divided into twelve separate federal reserve districts
• Each district has one federal reserve bank and one or more branches within the district (NY is the largest federal reserve bank)
• federal bank is a quasi-public institution

Question 2

Federal reserve functions

Answer 2

• The primary goal is to be the lender of the last resort to the banking system.
  proved reserves in the form of discount loans to the banking system
• to provide stability to the financial sector
• stabilize the price level
• foster full employment and economic growth

Question 3

Federal reserve board of governors (BOG)

Answer 3

The board consists of seven members

• governors are appointed by the president with Senate confirmation
• one member is chosen, every four years, to serve as the chair of the board of directors
• current fed chair: Jerome Powell

Question 4

The Federal open market committee (FOMC)

Answer 4

• holds eight meetings a year in D.C.
• Makes decisions regarding the conduct of the open market operation*
• The voting members of the FOMC are:
  the seven members of BOG, the president of the fed reserve bank of NY, four other fed reserve presidents who serve on a rotating basis*

Question 5

Functions of federal reserve district banks

Answer 5

• issuing new currency
  -providing check - clearing services*
• holding depository institutions’ reserve accounts
• making discount loans to banks*
• collecting data on business conditions within their districts
• researching topics related to monetary policy*
  (Fed reserve districts to not insure household deposits)

Question 6

Monetary policy

Answer 6

monetary policy is used to control the flow of money (money supply) in order to achieve particular economic goals.
The fed can use both open market and discount loans to alter the monetary base and the money supply.

Question 7

Expansionary (effect on interest rates, investment spending, AD, and the price level)

Answer 7

pg 222

Question 8

Contractionary (effect on interest rates, investment spending, AD, and the price level)

Answer 8

pg 221

Question 9

Money supply

Answer 9

is the quantity of money available in the economy for the immediate use. it includes the currency held by public and the demand deposits.

Question 10

Open market operations tool

Answer 10

(FOMC) Mechanism: buying and selling of US govt securities (bonds)

1) when the fed buys securities = MS increases - interest created go down
2) when the fed sells securities = MS decrease - interest rates go up.

Question 11

Open market operations tool

Answer 11

(FOMC) Mechanism: buying and selling of US govt securities (bonds)

1) when the fed buys securities = MS increases - interest created to go down
2) when the fed sells securities = MS decrease - interest rates go up.