Chapter 6 questions Flashcards Preview

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Flashcards in Chapter 6 questions Deck (12):
1

what is the wellspring of US dollars?

Federal Reserve

2

Why was the Fed created?

to be a lender of last resort to prevent banking crises

3

true, false. the fed's early record was not good

true, they caused huge deflation which was said to cause the great depression

4

True False. If congress wanted to end the fed they could stop funding it

False the Fed funds itself

5

Who runs the fed?

The 7 board governors appointed by the president to 14 year terms

Chair is appointed to 4 year term

6

how could an open market transaction lower the money supply?

if the FOMC sells bonds, bonds flow into the economy and money flows into the fed

7

if the fed lowers the required reserve ratio, what will happen to the money supply?

The money supply will increase because the bank can lend more, which moves money from their reserves, which are not part of the money supply, into currency and individual accounts, which are part of the money supply.

8

The news media says," the Fed lowered interest rates by 1% today" what does that really mean?

the FOMC plans to increase the money supply until the Federal Funds Rate falls 1%

9

Which of its three tools of monetary policy does the bank prefer?

Open Market Operations

The Required Reserve ratio is dangerous

the discount rate is weak

10

what is the definition of the money multiplier?

1/ (required reserve ratio)

11

the price index for a particular year is $200. What is the most straightforward interpretation of that number?

if $100 bought $100 worth of stuff in the base year, it takes $200 to buy the same stuff.

12

what is the definition of the inflation rate?

the percent change in the price index, usually over one year.