BCC Macro - Final Exam Review

What part of the government is responsible for buying/selling government securities?

FOMC (Federal Open Market Committee)

What are the functions of the Federal Reserve Banks?

Provide facilities where commercial & private banks can collect checks.

What is the money supply backed by?

Government’s ability to control the supply of money/Faith in the government.

What happens with an excess increase in the money supply?

Inflation.

What does inflation lead to for consumers?

Increase in purchasing power.

What is the appropriate fiscal policy for a severe recession?

Lower tax rates.

What event in 1930 led to John Maynard Keynes writing his book?

The Great Depression.

What did the American Recovery & Reinvestment Act of 2009 do?

Increased Government spending & Decreased Taxes.

Who is the central authority of the US Banking system?

Board of Governors of the Federal Reserve System.

What happens if excess reserves are put into the banking system?

Increased money supply, lowered interest rates.

What is the difference between Non-Discretionary and Discretionary Fiscal Policy?

Non-Discretionary is Automatic Stabilizers; Discretionary requires Congressional Act.

Do most economists believe that fiscal policy is better for the economy than monetary policy?

No, they believe monetary policy is faster.

What are the four main tools of market operations?

Required Reserve Ratio (RRR), Interest on excess reserves, Discount Rate.

What does M1 consist of?

Coins, currency & Checkable Deposits.

What happens if the required reserve ratio is lowered?

The money multiplier would increase.

What causes debt in the public?

Government spending, Tax reductions, Recession.

Who controls the money supply in the United States?

Federal Reserve.

What’s the interest rate at which the Federal Reserve Banks lend to Commercial Banks?

Discount Rate.

What is the crowding-out effect?

If the government spends too much, it may disallow the private sector due to using all the money.

What is an overnight loan from one bank to another for settling reserves called?

Federal Funds on a Federal Funds Rate.

What are the purposes of money?

Save, value, medium of exchange.

What actions does the Open Market take during a recession?

Buy securities.

What actions does the RRR take during inflation?

Rises.

What is the effect of a dollar appreciation on purchasing power overseas?

Positive Impacts: higher purchasing power overseas; Negative Impacts: lower purchasing power for foreign currencies.

What is jawboning in monetary policy?

Call for easy money or higher interest.