HCC FINAL EXAM REVIEW SP 2023

Flashcards for reviewing key concepts for the HCC Final Exam in Spring 2023, covering topics like monetary and fiscal policy, money supply, and the Federal Reserve.

How do you calculate the required reserves from checkable deposits and the RRR?

Multiply the Required Reserve Ratio (RRR) by the checkable deposits.

What components are included in M1 and M2?

M1 includes currency, checkable deposits, and savings. M2 includes M1, and money market mutual funds.

What are expansionary and contractionary fiscal policies, and how do they affect the Aggregate Demand (AD) curve?

Expansionary fiscal policy aims to stimulate economic growth during a recession by increasing government spending or decreasing taxes, shifting the AD curve to the right. Contractionary fiscal policy aims to reduce inflation by decreasing government spending or increasing taxes, shifting the AD curve to the left.

How do the purchase and sale of government securities/bonds affect the money supply?

Purchasing government securities Is expansionary increasing reserves and the money supply, credits money, buys bonds. Selling government securities is contractionary removing money and decreases the money supply and sells bonds.

Regarding the Federal Reserve Board of Governors, who appoints and approves members, what is the length of their term, and how many members are there?

The President appoints members of the Federal Reserve Board of Governors, and the Senate approves these appointments. Their terms are 14 years long. There are 7 members.

What are the four tools of monetary policy?

Open market operations (OMO), discount rate, reserve requirements, and interest on reserves (IOR).

What happens under easy and tight money policies, and how does buying/selling bonds affect the money supply?

Easy money policy stimulates economic growth by lowering interest rates and reserve requirements, and buying bonds to increase the money supply. Tight money policy aims to curb inflation by raising interest rates and selling government bonds to decrease the money supply.

What are the functions of money?

Medium of exchange, unit of account, and store of value.

What is the difference between excess reserves and required reserves?

Required reserves are the minimum amount banks must hold by law, and they cannot be lent out. Excess reserves are reserves held above the required amount, and they can be lent out.

In what year was the Federal Reserve System created?

1913

How are bond prices and interest rates related?

Bond prices and interest rates are INVERSELY RELATED. If interest rates rise, new bonds offer higher returns, so existing bonds with lower rates become less attractive, making prices of bonds fall.

What does FOMC represent, how many members are there, how often do they meet, and what do they discuss?

Federal Open Market Committee. It has 12 members (7 Board of Governors, 5 of the 12 regional Fed Reserve presidents). They meet 7-9 times per year to discuss money supply.

What are the shared goals of monetary and fiscal policy?

Full employment, stable prices, economic growth, and stable financial systems.

What is the crowding out effect?

A situation where increased government spending leads to a reduction in private sector investment.

What is printed on every U.S. dollar bill?

FEDERAL RESERVE NOTE

What is the interest rate banks pay to each other to borrow money overnight called?

Federal funds rate

Define budget surplus, budget deficit, and balanced budget.

Surplus: revenues are greater than spending. Deficit: government spends more than it collects in revenue. Balanced: spending equals revenue.

Do we count currency in banks as part of M1?

No, it would be counted twice.

Who controls the money supply?

Federal Reserve (Fed)

Define progressive tax rate, ability to pay, and excise tax.

Progressive tax rate: tax rate increases as income increases. Ability to pay: taxes should be levied based on a person's ability to pay. Excise tax: specific tax on a certain good or activity.

What are the determinants of demand?

Taste, Other goods (substitutes and complements), Expectations of future price changes, Income, Size of population.

What are the determinants of supply?

Technology, Input costs, Global events, Expectations of future price changes, Regulation, Size of market / # of producers, Taxes at point of manufacturing