Econ Final

Total Flash Cards » 51
 
1. 

Monetary policy refers to the actions the

 

Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.

 
2. 

The Federal Reserve System's four monetary policy goals are

 

price stability, high employment, economic growth, stability of financial markets and institutions

 
3. 

When the Federal Reserve System was established in 1913, its main policy goal was

 

preventing bank panics

 
4. 

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was

 

fighting inflation

 
5. 

During the turmoil in the market for subprime mortgages in 2007 and 2009, the Fed increased the volume of discount loans. The goal of the Fed was to

 

reassure financial markets and promote financial stability

 
6. 

To decrease the money supple, the Federal Reserve could

 

conduct an open market sale of Treasure securities

 
7. 

The Federal Open Market Committee consists of the seven members of the _______, the president of the Federal Reserve Bank of New York, and _________.

 

Federal Reserves Board of Governors; four presidents from the other 11 Federal Reserve Banks

 
8. 

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

 

open market operations, discount policy, and reserve requirements

 
9. 

The main tool that the Federal Reserve uses to conduct monetary policy is

 

open market operations

 
10. 

The purchase of Treasury securities by the Federal Reserve will, in general,

 

increase the quantity of reserves held by banks

 
11. 

The sale of Treasury securities by the Federal Reserve will, in general,

 

decrease the quantity of reserves held by banks

 
12. 

As a result of Kristy's deposit, Bank A's required reserves increase by

 

$2,000

 
13. 

As a result of Kristy's deposit, Bank A's excess reserves increase by

 

$8,000

 
14. 

As a result of Kristy's deposit, Bank A's can make a maximum loan of

 

$8,000

 
15. 

As a result of Kristy's deposit, checking account deposits in the banking system as a whole could eventually increase up to a maximum of

 

$50,000

 
16. 

The required reserves of a bank equal its _______ the required reserve ratio.

 

deposits multiplied by

 
17. 

The major assets on a bank's balance sheet are its

 

reserves, loans, and holdings of securities

 
18. 

The M1 measure of the money supply equals

 

currency plus checking account balances plus traveler's checks

 
19. 

Economies where goods and services are traded directly for other goods and services are called ______ economics

 

barter

 
20. 

The major shortcoming of a barter economy is

 

the requirement of a double coincidence of wants

 
21. 

Commodity money

 

has value indepent of its use as money

 
22. 

Silver is an example of a

 

commodity money

 
23. 

Which of the points in the above graph are possible short-run equilibria but not long-run equilibria?

 

B and D

 
24. 

Suppose the economy is at point A. If investment spending increases in the economy, where will the eventual long-run equilibrium be?

 

C

 
25. 

Suppose the economy is at point C. If government spending decreases in the economy in the economy, where will the eventual long-run equilibrium be?

 

A

 
26. 

Suppose the economy is at point A. If the economy experiences a supply shock, where will the eventual short-run equilibrium be?

 

B

 
27. 

An increase in aggregate demand results in a(n)_________ in the ________.

 

expansion; short run

 
28. 

Suppose there has been an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

 

increase; decrease to its initial value

 
29. 

A decrease in investment causes the price level to_______ in the short run and __________ in the long run.

 

decrease; decrease further

 
30. 

An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.

 

real GDP; the price level

 
31. 

Most recessions in the United States since World War II have begun with

 

a decline in residential construction

 
32. 

When the aggregate demand curve and the short-run aggregate supply curve intersect,

 

the economy is in short-run macroeconomics equilibrium

 
33. 

Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run?

 

Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.

 
34. 

The Federal Reserve's two main _______ are the money supply and interest rate.

 

monetary policy targets

 
35. 

The money demand curve has a

 

negative slope because an increase in the interest rate decreases the quantity of money demanded

 
36. 

An increase in the price level causes

 

the money demand curve to shift to the right

 
37. 

Using the money deman and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

 

decrease

 
38. 

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

 

increase

 
39. 

When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate housesholds and firms will now want to

 

sell Treasury bills

 
40. 

Figure 14.2 When the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will

 

sell Treasury bills

 
41. 

14.3 When the money supply shifts from MS1 to MS2, at the interest rate of 3 percent housholds and firms will

 

buy Treasury bills

 
42. 

For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the

 

federal funds rate

 
43. 

Which of the following would cause the money demand curve to shift to the left?

 

a decrease in real GDP

 
44. 

An increase in the interest rate

 

increases the opportunity cost of holding money.

 
45. 

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

 

real interest rates

 
46. 

From an initial long-run macroeconomics equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely

 

decrease interest rates

 
47. 

Figure 14.4 If the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to

 

lower interest rates

 
48. 

Figure 14.5 Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as movement from

 

A to B

 
49. 

Figure 14.5 Suppose the Fed lowers its target for the federal funds rate. Using the static AD-AS model in the figure above, this situation would be depicted as movement from

 

A to B

 
50. 

Figure 14.6 In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most

 

decrease interest rates

 
51. 

Figure 14.6 In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve puruses no policy then at point B

 

the economy is below full employment