ECON CHAPTER STUDY GUIDE for 6 SECTION 3 and CHAPTER 9 SECTIONS 4-5: THE FEDERAL RESERVE AND MONETARY POLICY

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55 Terms

1
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The statement "to break the back of inflation" means to _____________________ _______________

stablize prices

2
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People's confidence to ___________________ their money in banks is an indicator of a healthy banking and economic system

deposit

3
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If the Federal Reserve raises the reserve requirement to 13%, they are pursuing a _______________________________ monetary policy

contractionary

4
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The fractional reserve banking system is significant for economic health because...

a. When people are ___________________________ in banks, they will be more likely to ________________________________ money in banks

b. When more people _______________________ money in banks, there will be more money available to ______________ in the economy

confident

deposit

deposit

loan

5
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The fractional reserve banking system is significant for economic health because...

a. When more __________________ are available in the economy, more people will be likely to ____________________ money to buy a ______________, a ______________, go to ____________________________ or open/expand a ____________________________

b. When more people _____________________ money to make a large ______________________ or open/expand a _______________________, ______________________ spending, aggregate ______________________ and aggregate _______________________ will increase and the economy can experience ________________________ ____________________.

loans

borrow

house

car

college

business

borrow

purchase

business

consumers

demand

supply

econ

growth

6
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1. How does the FDIC build confidence in banks so people will deposit their money in banks?

a. The FDIC guarantees money in each account up to $_______________________ per account

b. The FDIC acts as __________________________ for bank customers to regain their money if a bank ___________________

250,000

insurance

fails

7
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1. How does the Federal Reserve help build confidence in banks so people will deposit their money in banks?

a. The Federal Reserve sends bank __________________ to inspect member banks

b. The Federal Reserve holds banks ___________________ to safe banking policies

c. The Federal Reserve requires banks to hold _____________________ in their vaults to prevent bank __________________

examiners

accountable

reserve

robbery

8
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1. The Federal Reserve encourages people to __________________ their money in banks because this can eventually help ______________________ the money supply and lead to economic ______________________ and growth.

deposit

expand

expansion

9
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1. The Federal Reserve is responsible for supervising member banks when it

a. Checks to verify that __________ made by member banks don't violate set limits

b. Oversees bank ______________________

loans

mergers

10
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1. The Federal Reserve is responsible for supplying paper currency when it

a. Replaces old ____________________ with new bills

b. Cashes a ________________________

c. Makes ____________________ available for its members

money

paycheck

cash

11
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1. The Federal Reserve acts as a fiscal agent for the federal government when it

a. Writes a ______________________ _________________________ check

Writes a _____________ _________________________ check

social security

tax refund

12
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1. When the Federal Reserve sells government securities, the money supply will _______________ and interest rates will _____________________.

decrease

increase

13
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1. The results of low interest rates:

a. More people can ______________________ to ______________________ money to buy a house

b. More workers can be _____________________ by construction companies to ________________ more houses/structures

c. More car salesman will potentially increase their _______________________ as a result of selling more _____________

afford -borrow

hired- build

commission - cars

14
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1. When the Federal Reserve pursues a contractionary monetary policy:

a. Business owners might be reluctant to borrow money to expand because loans are more ______________________________

b. The real estate industry will probably see reduced sales because less people can _________________ to ___________________ money to buy a house

c. Salesmen of large appliances who work on _________________________ will probably see reduced ___________________ because less people can afford to borrow money

expensive

afford- borrow

commission -sales

15
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1. When the Federal Reserve raises the discount rate, the money supply will __________________ and interest rates will ______________________.

decrease

increase

16
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1. When the Federal Reserve buys government securities, the money supply will _______________ and interest rates will _______________________.

increase

decrease

17
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1. The CPI is 6.4%. Real GDP and investment spending are increasing and unemployment is falling. The US is experiencing ______________________________.

inflation

18
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1. The ________________________________________ is the interest rate the Federal Reserve charges banks which borrow money.

discount rate

19
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1. Economic observers pay close attention to the _________________ ______________ and the _________________________ _______________ _______________ because this signals when the Federal Reserve is making a change in monetary policy.

discount rate

federal funds rate

20
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When unemployment is 6.5% and inflation is 12%, the appropriate policy for the Federal Reserve to pursue is _________________________________ policy.

contractionary

21
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1. As a result of contractionary monetary policy to fight inflation, the Federal Reserve wants to achieve

a. _________________________ _________________

b. Increased ______________________ ________________

c. Less money available for banks to ____________________ out

stablize prices

intrest rate

loan

22
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1. When the money supply is contracted

a. Interest rates will _______________________

b. Less money will be available for banks to __________________ out

It will become more _________________________ to borrow money

increase

loan

expensive

23
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1. Expansionary monetary policy will result in

a. ______________________ Interest rates

b. ____________________ money will be available to loan out

c. It will become _______________________ to borrow money

lower

more

cheaper

24
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1. The most important goal to accomplish when fighting inflation is to ____________________ ______________________.

stablize prices

25
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1. Contractionary monetary policy will result in

a. ______________________ Real GDP

b. ______________________ Aggregate Supply

c. ______________________ Unemployment

d. ______________________ Investment Spending

e. A ______________________ in consumer income

f. A ______________________ in consumer spending

g. ________________________ aggregate demand

decrease

decrease

increase

decrease

decrease

decrease

increase

26
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1. To fight a recession, the Federal Reserve can

a. _______________________ government securities

b. _______________________ the reserve requirement

c. _______________________ the discount rate

sell

lower

lower

27
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1. Less businesses will borrow money to open and/or expand their business when the Federal Reserve pursues _______________________________ monetary policy.

contractionary

28
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More people will be likely to borrow money to buy cars and houses when the Federal Reserve pursues _________________________________ monetary policy

expansionary

29
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The Federal Reserve's Federal Open Market Committee and the Board of Governors are willing to take action to prevent a recession or chronic inflation because the Fed is an __________________________ federal regulatory agency

independent

30
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The Federal Open Market Committee and the Board of Governors has a ______________________ inside lag than Congress and the President

shorter

31
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The amount of time it takes for the Board of Governors and the Federal Open Market Committee to decide and implement monetary policy is the _____________________________________

inside lag

32
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1. The Federal Reserve monitors economic indicators, which include

a. _________________ _____________________ _______________________

b. _____________________________

c. The _______________________ _______________ _________________

Gross Domestic Product

unemployment

consumer price index

33
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When the Federal Reserve raises the reserve requirement, there will be ________________ loans available to the public

less

34
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When the Federal Reserve sells government securities, the money supply will _____________________.

contract

35
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1. When the Federal Reserve raises the reserve requirement, the money supply will ___________________________.

expensive

36
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When the Federal Reserve raises the discount rate, loans will become more _________________________

expand

37
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1. When the Federal Reserve buys government securities, the money supply will _____________________.

expand

38
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1. When the Federal Reserve lowers the reserve requirement, the money supply will _____________________

expand

39
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When the Federal Reserve lowers the reserve requirement, _______________ loans will become available to the public

more

40
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1. The synonym for the buying and selling of government securities is ______________ _______________________ ___________________________.

open market operations

41
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The synonym for contractionary money policy is ___________________ _______________ Policy

tight money

42
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1. The most frequently used monetary policy tool of the Federal Reserve is _______________________________________________________________.

buying and selling gov securities (open market)

43
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The monetary policy that is very strong but rarely used by the Federal Reserve is changing the ______________________________________________________.

raise/lower reserve requirment

44
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During a recession, the Federal Reserve will work to achieve ________ aggregate demand and ______ investment spending

increase increase

45
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1. Expansionary monetary policy should help achieve

a. _____________________ Real GDP

b. _____________________ Aggregate Supply

c. _____________________ Investment Spending

d. _____________________ Interest Rates

e. _____________________ Unemployment

f. _____________________ Consumer Spending

g. _____________________ Aggregate Demand

h. _____________________ Consumer income

increase

increase

increase

decrease

decrease

increase

increase

increase

46
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1. The ____________________________________________________ is composed of 12 representatives from the banking industry who advise the Board of Governors on matters within their district.

federal advisory council

47
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1. The Federal Reserve's economic goals include

a. Stabilized _________________________

b. _____________________ employment

c. ______________________ _____________________

prices

full

econ growth

48
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______________________ monetary policy is used to fight a recession.

expansionary

49
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A synonym of expansionary monetary policy is __________ _____________ Policy

easy money

50
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A goal of expansionary monetary policy would include ______ the amount of money circulating in the economy

increase

51
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____________________________________ is deliberate action taken by the Federal Reserve to affect the expansion or contraction of the money supply

monetary policy

52
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The _______________________ _______________ __________________ ______________________________ works with the Board of Governors to implement monetary policy tools and control monetary operations

federal open market committee

53
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The 12 __________________ ________________ _______________ _________ are responsible for overseeing regional member banks, protecting regional economic interests and ensuring that the public has a say in central bank decisions

regional federal reserve banks

54
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The _____________________ of _________________________ is the main governing body of the Federal Reserve System and is responsible for overseeing the Federal Reserve Banks and helping implement US monetary policy

board- governors

55
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The economy is in a recession with unemployment at 11% and stagnant GDP and investment spending. The Federal Reserve will take action to __________________________ the money supply

expand