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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? 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? 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? 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? 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)?
growth of the U.S. money supply.
6)
What is check clearing? 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?
8)
What is the difference between the federal funds rate and the discount rate? 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?
10) What is money creation?
It makes key decisions about interest rates and the
It is a company that owns more than one bank.
It is calculated by computing total assets minus total liabilities.
It is the process by which money enters into circulation.
11) What is the required reserve ratio (RRR)?
banks are required to keep on reserve.
12) State the money multiplier formula?
calculated as 1/RRR.
It is the required ratio of reserves to deposits – fraction of deposits that
It is the amount of new money that will be created with each demand deposit
The Federal Reserve and Monetary Policy - Ch 16
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In order to be sure that they can meet customers’ demand and
13) Why do banks sometimes hold excess reserves?
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?
economy.
It is enacted to increase money supply and expand the
16) Why would the Federal Reserve enact a tight money policy?
the economy.
It is enacted to decrease the money supply and contract
17) What are inside lags, and why do they occur? 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? 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?
performance.
It is the belief that the money supply is the most important factor in macroeconomic
Week 17 of 21.
The 4 quiz towards your Final
th
2 FULL weeks to go!
Merry Christmas and a Happy
New Year
Mr. Bello
The Federal Reserve and Monetary Policy - Ch 16
Page 2
12/21/12