Monetary and Fiscal Policy Test 1

What are the macroeconomic objectives?

Economic Growth

Full Employment

Stabilized Prices

When was the first central Bank of the U.S. created and who proposed the idea?

1792, proposed by Alexander Hamilton

Who was Alexander Hamilton killed by and when

Aaron Burr in 1804

Who opposed the first Central Bank

Thomas Jefferson

When was the 2nd Bank of the U.S. created?

1816-1836

What happened for people to realize the 2nd Bank was needed?

War of 1812

Who tried to renew the 2nd bank's charter and who opposed?

Nicholas Biddle tried to renew but was Vetoed by President Andrew Jackson

What was the Wildcat Era?

(1837-1864) A time when each state had it's own currency, and before going to a new state you had to exchange currency, but the exchange banks were located in remote areas and people would be killed in process of exchanging money.

What was the National Banking Act of 1864?

led to creation of National Banks and weakening of state banks

only national banks could print currency

What was the Bank Panic of 1907?

A severe financial crisis which led to widespread bank runs and failures.

Saved by J.P. Morgan

Woodrow Wilson created 7 panels to study the creation of Central Banking

Federal Reserve Act passed in 1913 leading to the creation of the Fed in 1914

When was the Fed established

1914

What are the Branches of the Federal Reserve System?

Board of Governors

Federal Open Market Committee

12 Federal Reserve District Banks

Commercial Banks : Non-depository banks

What consists of 7 individuals, appointed by president and serve terms of 14 years (that can't be reappointed)?

The Board of Governors

Who meets every 6 weeks, consists of all 7 members of the Board of Governors, and 5/12 presidents of the District Banks?

Federal Open Market Committee (FOMC)

Who has a permanent seat on FOMC?

NYC President

What are the 12 districts of the Fed Reserve Banks?

1 Boston

2 New York City

3 Philadelphia

4 Cleveland

5 Richmond

6 Atlanta

7 Chicago

8 St. Louis

9 Minneapolis

10 Kansas City

11 Dallas

12 San Francisco

What are commercial banks

offer checking services, accept deposits, and make loans

What are non-depository institutions?

also known as thrifts; offer savings loans and Now Accounts, which is a checking account that pays interest

How was the Fed Reserve setup in 1913?

Board of Governors

12 Fed District Banks

Member Banks (National Banks)

non-member banks

What are the functions of the Fed

Issue Currency

Be the bank's bank

Be a fiscal agent of the Federal governmnt

Be a regulator of banks

Conduct Monetary Policy

What is the most important function of the Fed?

Conduct Monetary Policy

What does being the Bank's Bank mean?

The Fed holds bank reserves and is the lender of last resort.

Also is used for check collection and electronic payments, Sets federal funds rate

What does being the Regulator of banks mean?

The Fed checks for profitability, adherence of regulation, and if needed, can shutdown banks

Who is the current Chairmen of the Board of Governors and who are his 7 Predecessors

Jerome Powell (2018-Now)

Janet L. Yellen (2014-2018)

Ben S. Bernanke (2006-2014)

Alan Greenspan (1987-2006)

Paul A. Volcker (1979-1987)

G. William Miler (1978-1979)

Arthur F. Burns (1970-1978)

William McChesney Martin Jr. (1951-1970)

What is the Federal Funds Market?

the market where banks borrow and lend reserves to one another

What are the stages of the Business Cycle

expansionary, peak, recessionary, trough

What were the tools of Monetary Policy before 2009?

Conduction open market operations'

changing discount rate

changing reserve requirements

(operated on limited reserve requirements; banks keep money in vaults)

What are the Tools of Monetary Policy Today?

Conduction open market operations'

changing discount rate

changing the administrative rates

(operated on ample reserve requirements; banks have money gaining interest)

What is conducting open market operations?

buying and selling of bonds

To increase spending the fed (lowers/raises) the discount rate

lowers

this is expansionary monetary policy

To decrease spending the fed (lowers/raises) the discount rate

raises

this is contractionary monetary policy

How have banks changed the reserve requirements?

change in money supply = change in Excess Reserve x (1/reserve requirements)

Lowering reserve requirements, increases money supply

The required amount in the reserve requirement is

0%

What are Administrative Rates?

interest rates that banks earn in the Federal Reserve

Interest on Reserve Balances (IORB)- Interest nonbank gain from Fed Reserves

Overnight Repo Rates (ON RPP)

What are expansionary monetary policies? (Money supply increases)

Fed purchasing bonds/government securities

decreasing the discount rate

What are Contractionary fiscal policies? (Money supply decreases)

Fed selling bonds/government securities

Increasing the discount rate

What is fiscal policy?

The government gaining taxes and spending it for economic growth, price stability, and full employment

If tax revenue > government spending then the Gov. is running

a budget surplus

If tax revenue < government spending then the Gov. is running

a budget deficit

If tax revenue = government spending than the Gov. is running

a balanced budget

What sector of the economy drives the U.S. economy?

Private Sector (Households and Businesses)

What is inflation?

too much money chasing too few goods

When the economy is in Inflation, the policy aim should be to reduce (private/public) sector spending and the policy action should be a budget __________

private

surplus (T>G)

When an economy has insufficient private sector spending, this leads to ____________ , the policy aim should be to increase (private/public) sector spending and the policy action should be a budget __________

unemployment

private

deficit

What are the two types of government spending ?

Discretionary and Non-discretionary

What is discretionary spending?

(ad hoc) spend as you need it

ex; Transportation, Education, National Debt

What is non-discretionary spending?

automatic since implemented during previous years.

Ex; Social security, medicare, medicaid

From 1940 until now the U.S. government has been running a budget

__________

deficit

Before 1940 the U.S. Government was running a ___________ _________

Balanced Budget

What is the Total of all deficits called?

National Debt

What percent of National Debt is owned Domestically?

74%

Who are the domestic owners of the U.S, national debt?

Fed Reserve

U.S. government agencies

State/Local Governments

Banks and Institutions

Individuals

What percent of National Debt is owned by foreign countries ?

26%

Who owns most of the Foreign Owned U.S. National Debt?

China

What are the challenges of fiscal policy?

Lags

Political Business Cycle

Crowding out Affect

Rational/ Adaptive Expectations

What are the lags of fiscal policy?

time it takes to recognize unemployment and inflation

formation of policy (going from executive to legilative to getting passed)

Lag in effect (time it takes to for policy through filter through economy)

What are the four types of unemployment?

seasonal, cyclical, frictional, structural,

The department of labor only measures what type of unemployment?

cyclical

What is the theory that policies are deliberately set up Presidents and Congress to stimulate economy and win elections?

Political business cycle

What is the crowding out effect?

When government borrowing raises interest rates, reducing private sector borrowing

Who is the African America vice-chairman of the board of governors of the federal reserve

Phillip N. Jefferson