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48 Cards in this Set
- Front
- Back
Who handles the printing of paper currency
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The Treasury Department
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Does the Fed engage in monetary policy?
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Yes
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Who handles fiscal policy?
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President and Congress
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Who manages the U.S. money supply?
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The Federal Reserve
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Who manages processing checks?
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The Federal Reserve
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Who makes sure banks comply with consumer protection laws?
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The Federal Reserve
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The Federal Reserve engages in what type of policy?
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Monetary Policy
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What are the tasks of the Federal Reserve
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managing the US money supply, processing checks, making sure banks comply with consumer protection laws, engaging in monetary policy
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What are the ways that governments can increase or decrease the money supply?
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open market operations, reserve requirement, discount rate, quantitative easing
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Policy Tool for Opening Market Operations
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A central bank purchasing existing bonds
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Policy Tool for Reserve Requirement
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An increase in the percentage of deposits that banks must keep on hand
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Policy Tool for Discount Rate
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An increase in the interest rate that a central bank charges commercial banks for loans
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Policy Tool for Quantitative Easing
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A central bank purchasing a large quantity of longer-term Treasury bonds
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Expansionary monetary policy encourages spending but also....
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increases the aggregate price level
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When a rising aggregate price level is a concern but GDP is growing at an acceptable rate, what is an appropriate policy to undertake?
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Contractionary monetary policy
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When inflation is occurring and GDP is not growing at an acceptable rate, what is an appropriate policy to undertake?
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It's unclear what type of monetary policy
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Contractionary monetary policy will cause interest rates to....?
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increase
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Loanable Funds Market
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hypothetical market that brings savers and borrowers together, also bringing together the money available in commercial banks and lending institutions available for firms and households to finance expenditures, either investments or consumption
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Reserve Ratio
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The portion (expressed as a percent) of depositors' balances banks must have on hand as cash.
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Who issues the requirement for the reserve ratio
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determined by the country's central bank, in US, the Federal Reserve
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The reserve ratio affects the....?
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money supply in a country
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Open Market Operation (OMO) is...?
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an activity by a central bank to buy or sell government bonds on the open market
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The usual aim of open market operations is to....?
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manipulate the short term interest rate and the supply of base money in an economy, and thus indirectly control the total money supply (expand or contract)
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What describes the policies that will cause aggregate demand to shift to the right?
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a. A central bank uses open market operations to conduct expansionary monetary policy. b.) An increase in the money supply. c.) The Federal Resrve buys bonds from private banks. d.) A decrease in the discount rate
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What describes the policies that will cause aggregate demand to shift to the left
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a.) A central bank sell bonds on the open market. b.) An increase in the required reserve ratio
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If a central bank uses open market operations to conduct expansionary monetary policy how will that affect the aggregate demand curve?
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There will be a shift to the right
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If there is an increase in the money supply, how will that affect the aggregate demand curve?
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There will be a shift to the right
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If the Federal Reserve buys bonds from private banks, how will that affect the aggregate demand curve?
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There will be a shift to the right
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If there is a decrease in the discount rate, how will that affect the aggregate demand curve?
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There will be a shift to the right
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If the central bank sells bonds on the open market, how will that affect the aggregate demand curve?
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It will shift to the left
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If there is an increase in the required reserve ratio, how will that affect the aggregate demand curve?
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It will shift to the left
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If there is use of the expansionary demand policy, how will the aggregate demand curve shift?
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There will be a shift to the right
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If the Federal Reserve purchases bonds on the open market, how will this affect the aggregate demand curve?
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There will be a shift to the right
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Methods the Fed uses to affect the money supply
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a.) buying and selling bonds on the open market. b.) changing the reserve requirements for banks. c.) quantitative easing. d.) changing the interest rate charged in loans to banks
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If the Federal Reserve uses Open Market Operations to increase the interest rate, how will this affect the aggregate demand?
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There will be a shift to the right
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In Open Market Operations, what happens to real output in response to the increase in the interest rate change?
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It decreases
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A bank run is when..?
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Too many of a banks customers make withdrawals at once
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Bank runs are only problematic with...?
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fractional reserve banking systems
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An example of an institution that decreases the frequency of bank runs
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FDIC
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Lender of Last Resort
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one of the roles of the central bank, to provide loans to distressed financial institutions
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Deposit Insurance
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one of the roles of central bank is to foster confidence in the banking system by making sure that all people can retrieve their money even if a bank goes bankrupt
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Expansionary monetary policy
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intended to stimulate the economy
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Contractionary Policy
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meant to slow down the economy
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The federal reserve purchasing bonds on the open market is an example of what type of policy?
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Expansionary Monetary Policy
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A decrease in the discount rate is an example of what type of policy?
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Expansionary Monetary Policy
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A Central bank reducing the rate of interest that it charges to commercial banks on loans is an example of what type of policy?
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Expansionary Monetary Policy
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The Federal Reserve selling bonds to the open market is an example of what type of policy?
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Contractionary Monetary Policy
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A central bank increasing percentage of deposits that banks are required to keep in vaults is an example of what type of policy?
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Contractionary Monetary Policy
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