Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

macroeconomics > conventional monetary policy > Flashcards

conventional monetary policy Flashcards

1
Q

monetary policy

A

any action taken by a countrys monetary authority to steer the local economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

when is monetary policy said to be conventinoal

A

if it is limited to one of the four conventinoal tools AND if OMO are exlcusive to fine tune total amount of reserves held by depository institutions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

four conventional tools

A

OMO
-reserve requirements
-discount rate
-interest on reserves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is the main tool the fed used to use

A

open market operations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what are OMO instructed by

A

FOMC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what are OMO

A

purchases and sales of financial assets by the NY feds trading dek

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

when fed buys treasury bonds

A

they go up (more of that asset), use cash to pay and creates reserves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what happens when a typical bank sells financial assets

A

when you sell it goes down, sell for money in form of reserves (electronic)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what happens whne the fed buys US treasury securities (or any other asset)

A

it pays for said purchase by creating previously non-existent reserves -> fed grows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

treasury bills

A

-bond gov promises to pay in one yr
-go away without fed selling is governemnt paying it off

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what happens when the fed sells US treasury securities (or any other asset)

A

exisiting reserves are destroyed -> fed shrinks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

histroically, vault cash/reserves required to be…

A

held ahainst a banks outstanding deposits (typically 10%)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

excess reserves

A

vault cash in excess of a banks reserve requirements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

histroically did we have excess reserves

A

no, so you could restrict banks on deposits they can make

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

bank run

A

when everyone leaves bank and takes out money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

why was fed originally founded

A

to stop bank runs
-relied on private citizen JP morgan to save us
-congress said no more to that

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

why do banks under normal circumstances prefer to borrow reserves from other banks because

A

it is cheaper (normally) and because borrowing from the fed has historically been viewed as a sign of weakness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

trade off of IOR

A

hold reserves with the Fed vs lend them to other banks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

fed funds are

A

reserves borrowed from other banks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

borrowed reserves are

A

borrowed from the fed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

uncollateralized

A

just gotta trust

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

why in Fed 2023 inc interest rates a lot

A

to try to help price stability b/c price inc a lot

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

fed tries to influence

A

the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

FFR is

A

reserves borrowed from bank

25
Q

market rates are determined by

A

the market

26
Q

commercial loan rates

A

loan to finance operation

27
Q

market for fed funds

A

what banks lend to each other overnight

28
Q

are non borrowed reserves fixed

A

yes

29
Q

are borrowed reserves supplied at the discount rate

A

yes

30
Q

what is banks fundamental trade off

A

-lend to fed at IOR
-lend to banks above IOR

31
Q

as FFR gets high in market for fed funds

A

minimize holdings (vertical demand curve)

32
Q

collateral

A

something you offer to secure a loan

33
Q

profit between ___ and ___ is stronger incentive to lend and not hold in account

A

FFR; IOR
-idea is to hold as little reserves as possible

34
Q

market for fed funds: as the fed increases NBR (via OMO) what happens to the quilibrium FFR rate

A

FFR falls

35
Q

for market for fed funds (demand): demand for FF is decreasing in FFR because

A

the opportunity cost of holding reserves rises

36
Q

demand for FF is perfectly eleastic at IOR because

A

banks are indifferent between lending reserves to other banks or keeping them

37
Q

how fed used to work

A

fed increases suply of reserves by purchasing financial assets
-sell would decrease

38
Q

how do purchase/sale of treasuries by the fed affect the prior graph? where would you expect FFR to beunder the current ample reserves system

A

today if you shift far right FFR would be lower at what IOR is

39
Q

today fed does what to change interest rates

A

manipulate IOR to pin interest rates

40
Q

why does fed not have super tight control on bank deposits

A

b/c they dont create deposits (they can make notes)

41
Q

today the primary interest rate the fed uses to steer the economy is

A

the federal funds rate

42
Q

how does fed set FFR tody

A

OMO, IOR, and DR

43
Q

how do OMO, IOR, and RD infleunce FFR

A

IOR and DR serve as bounds while OMO can pricniplaly be used to find tune FFR between those bounds

44
Q

under the ample reserves system what is the most important conventional tool

A

IOR

45
Q

conventional monetary policy focused on

A

short term FFR

46
Q

taylor rules

A

math equation to help us understand how Fed makes decisions

47
Q

even without consulting the current tealbook can we oredict the feds FFR target

A

yes, taylor rule exists as a function of output + inflation

48
Q

output and unemplyment are directly

A

proportional

49
Q

does taylor rule work

A

yes

50
Q

taylor rule uses what to solve for FFr

A

output gap (unemployment part) and inflation gap (price stability part)

-of dual mandate!

51
Q

respond to (-) output gap by dec

A

FFR

52
Q

implicaation of taylor rule

A

raise rates when output and/or inflation are overheating (ie rel. high)

53
Q

why during volvker disinflation was weight of taylor rule 1/2

A

since volvker was a hawk

54
Q

today what is the weight we use in taylor rule

A

1 (more dove like)

55
Q

does modified or originial taylor rule follow fed behaviors better

A

Original

56
Q

what version of taylor rule is used today, why?

A

modified

fed behaviors go into (-), and fed is unwilling to set interest rates at negative levels b/c incentive to convert e-money to cash (garuntees 0% interest rate)

57
Q

what happens if Fed actually went negtive with interest rates

A

bank runs and that it would encourage people to borrow money

58
Q

does FOMC solve global problems

A

no, it has five options that are versions of taylor rule. Guided decisions as seen in teal book

macroeconomics (26 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions