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ECONOMICS
The Federal Reserve and Monetary Policy - Ch 16
1)
Who serves on the Board of Governors of the Federal Reserve? (20 points)
The seven members are usually economists, from business, academia, or government who are appointed by the
President of the United States with the approval of the Senate
2)
What is monetary policy? (20 points)
It consists of the actions the Fed takes to influence the level of real GDP and the rate of inflation in the nation’s economy.
3)
Describe the makeup of the Federal Reserve Districts? (20 points)
Each district is made up of more than one state. Federal Reserve Districts include a mixture of agricultural,
manufacturing, and service industries as well as rural and urban areas.
4)
What does the Federal Advisory Council (FAC) do? (20 points)
It collects information about each district and reports to the Board of Governors about economic conditions within each
district. It is a research arm of the Fed.
5)
What is the role of the Federal Open Market Committee (FOMC)? (20 points)
It makes key decisions about interest rates and the growth of the U.S. money supply.
6)
What is check clearing? (20 points)
It is the process by which banks record whose account gives up money and whose account receives money when a
customer writes a check.
7)
What is a bank holding company? (20 points)
It is a company that owns more than one bank.
8)
What is the difference between the federal funds rate and the discount rate? (20 points)
The federal funds rate is the interest rate banks charge each other for loans. The discount rate is the rate the Federal
Reserve charges for emergency loans to commercial banks.
9)
How is net worth calculated? (20 points)
It is calculated by computing total assets minus total liabilities.
The Federal Reserve and Monetary Policy - Ch 16
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10) What is money creation? (20 points)
It is the process by which money enters into circulation.
11) What is the required reserve ratio (RRR)? (20 points)
It is the required ratio of reserves to deposits – fraction of deposits that banks are required to keep on reserve.
12) State the money multiplier formula? (20 points)
It is the amount of new money that will be created with each demand deposit calculated as 1/RRR.
13) Why do banks sometimes hold excess reserves? (20 points)
In order to be sure that they can meet customers’ demand and Federal Reserve requirements.
14) If the discount rate rose, would you expect the prime rate to rise, fall, or die? (20 points)
RISE
15) Why would the Federal Reserve enact a easy money policy? (20 points)
It is enacted to increase money supply and expand the economy.
16) Why would the Federal Reserve enact a tight money policy? (20 points)
It is enacted to decrease the money supply and contract the economy.
17) What are inside lags, and why do they occur? (20 points)
It is a delay in implementing monetary policy. It occurs because it is not always immediately obvious, even to
economists, exactly how the economy is performing, and because the economic data usually take time to be gathered,
analyzed, and reacted to in the form of economic policy.
18) Why does monetary policy have such long outside lags? (20 points)
It may be long because they mainly affect business investment plans. Firms may take months or years to make and carry
out these plans.
19) What is monetarism? (20 points)
It is the belief that the money supply is the most important factor in macroeconomic performance.
Week 6 of 9.
The 6th quiz towards your final.
The Federal Reserve and Monetary Policy - Ch 16
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