BCC Macro - Final Exam Review

1. What part of the government is responsible for buying/selling government security?

FOMC (Federal Over Market Committee)

2. What are the functions of the Federal Reserve Banks?

Provide facilities where commercial & private banks can collect checks

3. What is the money supply backed by?

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

4. An excess increase in the money supply…

Inflation

5. What does inflation lead to for consumers?

Increase in purchasing power

6. What is the appropriate fiscal policy for a severe recession?

Lower tax rates

7. What happened in 1930 that led to John Maynard Keynes writing his book?

The Great Depression

8. The American Recovery & Reinvestment Act of 2009…

Increased Government spending & Decreased Taxes

9. Who is the central authority of the US Banking system?

Board of Governors of the Federal Reserve System

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

Increased money supply, lowered interest rates

11. Non-Discretionary vs. Discretionary Fiscal Policy

 Automatic Stabilizers vs. Congressional Act

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

Monetary (faster)

13. What are the four main tools of market operations?

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

14. M1 vs. M2 vs. MCM

        Coins currency & Checkable Deposits vs.

15. If the required reserve ratio was lowered, the money multiplier would

Increase

16. What causes debt in the public?

Government spending, Tax reductions, Recession

17. Who controls the money supply in the United States?

Federal Reserve

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

Discount Rate

19. What is the crowding-out effect?

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

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

Federal Funds on a Federal Funds Rate

21. What are the purposes of money?

Save, value, medium of exchange

22. Recession

• Open Market: buy securities

• RRR: Lowers

• Discount Rate: Lowers

• Margin Requirements: Lowers

• Consumer Credit: Rate Lowers while Credit Limit Increases

• Jawboning: call for easy money

23. Inflation

• Open Market: less securities

• RRR: Rises

• Discount Rate: Rises

• Margin Requirements: Rise

• Consumer Credit: Rate Rises while Credit Limit Lowers

• Jawboning: call for higher interest

24. If the dollar appreciates

1. Positive Impacts: higher purchasing power overseas

2. Negative Impacts: lower purchasing power for foreign currencies (overall bad