13 (m-policy)

Question 1

Regulation: Why, what who, when?

Answer 1

Great depression made people realize how fraught the whole system was, bank failures etc. Imposed capital requirements for the bank, required reserves, FDIC so that people don’t loose their money. Federal Reserve sets RRR, discount rate (directly), interbank interest rate (through the open market).

Question 2

Assets of the FED

Answer 2

Holds cash+bonds, loans to banks, also have some MBSs and CDOs they bought during the financial crisis.

Question 3

Liabilities of the FED

Answer 3

Federal Reserve Notes, Deposits of the treasury, deposits of commercial banks.

Question 4

Goals of FED policies

Answer 4

Expand or tighten the money supply.

Question 5

In a growing economy, FED can ________ or _____.

Answer 5

Can control either Money supply or interest rate but not both.

Question 6

Keynesian Policy (1949-1978)

Answer 6

Growth based, unemployment focused. Want to set R constant, don’t care how money supply grows.

Question 7

Hard-core monetarism (1979-86)

Answer 7

Want to fight inflation, try to keep money supply from growing uncontrollably. Don’t worry about the interest rates.

Question 8

Soft-core monetarism (1986-present)

Answer 8

trying to control inflation but with more discretion and more focus on GDP growth as well. Looks at commodity and wage prices as symptoms of inflation.

Question 9

Monetarist Ideas.

Answer 9

Low inflation, so want to put a speed limit on the economy and do soft landings so things stay in control.