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ECON 311 exam 2 > Chapter 13 > Flashcards

Chapter 13 Flashcards

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1
Q

What is the central bank?

A

a financial institution given privileged control over the production and distribution of money and credit for a nation

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2
Q

What is the central bank?

A

A national bank that provides financial and banking services for its country’s government and commercial banking system, as well as implementing the monetary policy and issuing currency

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3
Q

What is the central bank?

A

Institution responsible for maintaining the stability of a nation’s currency and economy

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4
Q

What is the role of a central bank:

A

-production and distribution of money and credit for a nation,
-financial and banking services for its country’s government and commercial banking systems
-implementing monetary policy and issuing currency
-responsible for maintaining the stability of a nation’s currency and economy

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5
Q

How many members are in the BOG?

A

Seven members (including chair), appointed by the president and confirmed by the senate
- 14 year terms
chair is a 4 year renewable term (old chair is expected to resign)

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6
Q

What is the role of the BOG?

A

-Set (within limits) reserve requirements
-Set interest paid on excess reserves
-Review and determine discount rate
- oversee FR system
- Serve on FOMC
- Effectively set the discount rate (fixed rate below FFR)
- Sets margin requirements for own securities
- Sets salary of fed presidents and officers, review FRB budgets
- Approves bank mergers
- Hires research staff of economists

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7
Q

How many directors are in a Federal Reserve Bank?

A

Each with 9 directors (3 appointed by BOG) (6 elected by member banks)

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8
Q

What is the role of a federal reserve bank?

A
  • Establish discount rate
  • Advise on reserve requirements
  • Provide services to banks (currency, checks, and loans)
  • Supervise and regulate financial institution in the region
  • Select federal advisory council (1 banker from each district)
  • Collect data/monitor business conditions (beige book)
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9
Q

Who are the FOMC members?

A

7 BOG members + president of FRB NY + four other FRBs who rotate

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10
Q

What is the role of the FOMC?

A
  • Advise reserve requirements
  • Advise interest paid on excess reserves
  • Direct open market operations
  • Advise discount rate
  • publish teal book
  • set reserve requirements
  • set interest on reserves
  • sets the FFR
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11
Q

how often does the FOMC meet?

A

about every 6 weeks, or whenever is needed

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12
Q

Who votes on the FOMC?

A
  • BOG votes
  • NY fed President
  • 4 rotating fed presidents
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13
Q

Who makes up the federal advisory council

A

12 members (bankers) one from each district, selected by 1/12 of the FRB’s

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14
Q

Role of member banks

A
  • elect six directors to each FRB
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15
Q

How many member banks are there?

A

around 3000

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16
Q

Who prints federal notes?

A

US Treasury

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17
Q

Who issues federal bank notes

A

1/12 of the federal reserve banks

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18
Q

Role of the New York Federal Reserve Bank

A
  • International financial capital
  • Supervise and regulate key financial institutions
  • Open market desk (bonds)
  • Foreign exchange desk
  • Member of the bank for international settlements (represents US/international relations)
  • Permanent FOMC voting members
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19
Q

Who is the chair of Federal Reserve Board of Governors?

A

Jerome Powell

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20
Q

What is the role of the chair of federal reserve board of governors?

A
  • set BOG agenda
  • supervise BOG economic research
  • advise the president
  • speak on behalf of the fed
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21
Q

What are the functions of the Central bank of the US?

A

Maintain payment system
Supervise and regulate financial institutions
Monitor financial system stability
Conduct monetary policy (dual mandate)

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22
Q

What is the dual mandate?

A

(Humphrey-Hawkins)
1. Max employment (natural rate of unemployment)
2. Stable Prices (inflation target of 2%)

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23
Q

What is the case for Central Bank Independence?

A
  • Focus on long term objective prices (price stability)
  • Not influenced by political pressures
  • Prevents and a political business cycle
  • Separate control of president/treasury and deficit financing
  • Expertise
  • Pursue unpopular policies in the public interest
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24
Q

What is the case against Central bank independence?

A
  • Undemocratic
  • Monetary policy affects all
  • Lack of accountability (success of fed?)
  • Control by an “elite group”
  • Public holds congress/ president accountable for the economy
  • Fiscal and monetary policy can be at cross-purpose
  • Self-interest versus public interest (theory of bureaucratic behavior)
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25
Fed Transparency?
- Release of minutes (3 weeks after FOMC meetings) - Inflation target (anchoring inflation expectations) - Forecast horizon 3 years + long run projections - Press conferences after FOMC meetings - Actions + expected future actions (bias)
26
Who signed the federal reserve act into law?
Woodrow Wilson
27
what did the federal reserve act do?
established the federal reserve system
28
What did the McFadden Act do?
Removed the 20-year limit on the Reserve Banks Charter, prevented the central bank from getting embroiled in a political battle over the issue of renewing a charter
29
Black Tuesday?
October 29, 1929 stock market crash leading to The Great Depression
30
What did the Glass-Steagall Act do?
(Banking Act of 1933) - created FDIC as a temporary government agency with the authority to provide deposit insurance to banks, originally insuring banks deposits of up to $2,500 -separated investment banking activities from commercial banking activities - gave the Federal Reserve Board the responsibility of supervising bank holding companies, and created the FOMC.
31
What is the Banking Act of 1935?
- defined the role of the FOMC, giving it, its current structure - changed reserve banks heads from governor to president - removed comptroller of the currency and the secretary of treasury from their positions on the federal reserve board - made FDIC a permanent government fixture and increased the maximum amount of insured deposits to $5,000
32
What is the employment Act of 1964
first legislative acknowledgement of protecting the nation against recessions
33
Consumer Credit Protection Act of 1969
regulated consumer transactions that began with the truth in lending act 1968 which requires lenders to disclose the cost of borrowing to consumers, CCPA also includes the equal credit opportunity act prohibiting discrimination during credit cards transaction on the basis of sex, religion, race, etc., the fair credit billing act (requiring a credit card company to credit payments and correct billing errors without damaging consumers credit scores), the fair credit and charge card disclosure act ( requiring a credit card company to disclose the terms of the card, such as the APR, annual fees, and interest-free periods for payment before interest charges are assessed).
34
Equal credit opportunity act of 1974
combats discrimination in consumer and business lending
35
Electronic funds transfer act of 1978
provides consumer protection during electronic financial transactions
36
Humphrey-Hawkins act
Dual mandate - full employment and production - reasonable price stability - required fed reserve chairman to testify 2x a year before congress about the fed's objectives and its plans for monetary policy
37
Volcker viewpoint on inflation:
believed that inflation is a monetary phenomenon that occurs when the money supply grows faster than output over a period of time, made them focus on money supply
38
Monetary Control act of 1980
Federal Reserve should offer payment services not only to member banks but also to any depository institution that wanted to use them and to charge all institutions for the services an amount sufficient to cover the cost of providing the service, the law also granted depository institutions subject to reserve requirements equal access to discount window lending, changed the legal requirements for banks in regard to maintaining reserves with the fed (all banks required)
39
Who had the largest tax cuts in history?
Reagan 1981 tax ute legislation (lowered $750 billion)
40
Who was the first woman chair of the federal reserve system?
yellen
41
Who was the first woman president of a reserve bank?
Horn
42
Who was the first woman to join the fed's board of governors?
Teeters
43
Riegele-neal Interestate banking and efficiency act
allowed banks to set up branches in other states
44
Dodd-Frank Act:
main goal was financial reform to address the practices that led to crisis, also resulted in 3 fed reserve changes 1.Expanded fed’s regulatory role by adding savings and loan holding companies to supervisory activities of the fed - Fed given supervisory authority for systemically important nonbank financial companies - Also created the FSOC to conduct surveillance and monitor risks to the financial systems 2. Placed limits on the fed's role under section 13(3) of the Federal Reserve Act as a lender of last resort in unusual and exigent circumstances - Allows fed to use emergency lending power to make a loan to a company as long as that loan is part of a larger program available to an entire sector or industry 3. Congress Transferred the fed’s authority to write regulations for most federal consumer protection laws to the newly created consumer financial protection bureau
45
How many FOMC participants?
19 FOMC participants (seven governors + 12 reserve banks presidents), as well as select staff and economists from the Board and the Reserve Banks
46
What is the FOMC meeting objective?
to set the committee’s target for the federal funds rate (the interest rate at which banks lend to each other overnight), at a level that till support price stability and maximum sustainable economic growth
47
When does the FOMC release its official minutes?
3 weeks after each meeting
48
FRB of NY daily market operations
- used to achieve the FFR target -Feds open market purchases of government securities increase the amount of reserve funds that banks have available to lend, which puts downward pressure on the federal funds rate -Sales of government securities shrink the reserves funds available to lend and raise the funds rate
49
Who publishes the teal book?
FOMC
50
Who publishes the beige book?
published by FRB, reserve banks prepares a Summary of Commentary on Current Economic Conditions which is published 2 weeks before each meeting and referred to as the beige book
51
Greenbook
Federal reserve board's director of the division of research and statistics, along with the director of the division of international finance: they review the board staff’s outlook for the US economy and foreign economics. This detailed forecast is circulated the week before the meeting to FOMC members in what's called the green book
52
Blue book
Policy discussion begins and the federal reserve board's director of the division of monetary affairs outlines the committees various policy options in a bluebook (final decision)
53
What is a mutual fund?
a portfolio of assets like stocks and bonds managed by professionals
54
What is a passive mutual fund?
a portfolio of assets that don’t pick individual stocks but rather invest in a basket of stocks such as the S&P 500
55
Out of the top 25% best preforming funds, how many are in the top after 2 years, after 5 years?
4% in 2 years, less than 1% after 5 years
56
Fed Transparency:
- Release of minutes (3 weeks after FOMC meetings) - Inflation target (anchoring inflation expectations) - Forecast horizon 3 years + long run projections - Press conferences after FOMC meetings - Actions + expected future actions (bias)
57
Tightening monetary policy action
rise in FFR
58
easing of monetary policy
lowering the FFR
59
Green Book:
up until 2010, a detailed national forecast for the next 3 years published by the federal reserve board of governors research and statistics division
60
Blue book:
projections for the monetary aggregates prepared by the monetary affairs division of the board of governors with typically 3 alternative scearios of monetary policy
61
Teal Book:
Started in 2010, blue and green books combined
62
Beige Book:
produced by the reserve banks and details evidence gleaned from either surveys or from talks with key business and financial institutions on the state of the economy in each district, only one distributed publicly
63
Chair Greenspan:
advocate for laissez-faire capitalism, dubbed "maestro" by media; extensive control
64
Chair Bernanke and Yellen
Boards staff forecast played a much bigger role

ECON 311 exam 2 (1 decks)

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