Untitled Flashcards Set

What is the tool of monetary policy involving the Fed's buying and selling of government bonds?

Open-market operations.

A _____ is when people rush to a bank to withdraw all of their deposits because they feel that the bank could fail.

Bank run.

When the demand for money is greater than the supply of money, what happens to interest rates?

People must increase the interest rate on nonmonetary financial assets to sell them.

What are the three main monetary policy tools?

Open-market operations, the discount rate, and reserve requirements.

If the Federal Reserve wants to increase the monetary base, what might it do?

Engage in an open market purchase of Treasury bills.

What happens when the Fed decreases banks' reserves through an open-market operation?

The monetary base decreases, loans decrease, and the money supply decreases.

What are the major tools of monetary policy available to the Federal Reserve?

Reserve requirements, open-market operations, and the discount rate.

The Federal Reserve system was created largely as a response to what?

A devastating financial panic that caused the stock market to collapse and prompted a long recession.

To decrease the money supply, what could the central bank do?

Make open-market sales.

Crowding out results in a(n):

Decrease in private investment spending resulting from government deficit spending.

If the Federal Reserve wants to increase the money supply, what will it do?

Lower the reserve requirement.

A business will want to borrow for an investment project when the rate of return on that project is:

Greater than the interest rate.

In the loanable funds market, savers:

Supply funds.

When the Federal Reserve is conducting an open market operation, it is doing what?

Buying or selling Treasury securities.

All of the following are responsibilities of the Fed EXCEPT:

Mint bills and coins.

A general decrease in the amount of government borrowing will typically:

Shift the loanable funds demand curve to the left.

The federal funds rate is the interest rate at which:

Banks borrow excess reserves from other banks.

Businesses will undertake projects if the rate of return is:

Greater than or equal to the interest rate levied on the loan.

If a bank won't meet the Federal Reserve Bank's reserve requirement, it will first turn to:

Other member banks and borrow at the federal funds rate.

The Fisher Effect states that:

The expected real rate of interest increases by one percentage point for each percentage point change in expected inflation.

When a financial institution finances investments by borrowing money, it is said to be using:

Leverage.

Which of the following is a tool used by the Fed in the conduct of monetary policy?

Buying and selling federal government bonds.

Now that fast food places such as McDonald's are accepting credit card payments:

The demand for money has not been affected.

The Fed's main assets are:

U.S. Treasury bills.

The discount rate is the interest rate the Fed charges on loans to:

Banks.

The Federal Reserve System was created in:

The Federal Reserve System is the _______ for the United States.

Central bank.

When banks borrow and lend reserves from each other, they are participating in the ______ market.

Federal funds.

Crowding out is a phenomenon:

Where an increase in government's budget deficit causes the overall investment spending to fall.

When the central bank wants to expand the monetary base, the most commonly used method is to:

Buy government bonds from commercial banks.

The opportunity cost of holding money is:

The difference between interest rates on monetary assets and on nonmonetary assets.

In the Federal Reserve system, there are ____ districts.

In the U.S., the institution determining the size of the monetary base and regulating the banking system is the:

Federal Reserve.

When a bank borrows from the Federal Reserve, it pays the:

Discount rate.

The Fed's main liabilities are:

Currency and bank reserves.