Lecture 3

Question 2

What is the purpose of central banks

Answer 2

Supervise nations money supply
regulate finanical insitutions
Lender of last resort when there is liquidy problems

Question 3

Explain the DODD frank act

Answer 3

Gave fed more ability to manage systemtic riks in the economy

Question 4

How were tougher regulation applied to large banks

Answer 4

Increased the regulatory limit for big bansk

Question 5

HOW IS THe fed independant

Answer 5

Does not have to make decision based on the rpesendent, congress etc.

Question 6

What are the 3 major tools for monetary policy

Answer 6

Reserve Requirements, discount rate and reserve requriments

Question 7

Explain open market operations

Answer 7

Fed buys to bonds to increase money supplu. Short term intresr rate are pressured downards when they buy

Question 8

What is canada strategy in terms of monetary policy

Answer 8

Flexbile inflation targeting

Question 9

What is flexible inflation targeting

Answer 9

Influences monetary policy with overnigh intrest rate, which is the rate at which major financial insitutions lend and borrow moneu from each other

Question 10

Advantages of flexbile inflation targeting

Answer 10

More flexibility as they can reponse more quickly
Encourage amks tp ,amage their liquidity more actively

Question 11

Explain the ample reserves regime

Answer 11

banks have more than enough reserves (extra cash) to meet their needs. Because of this, the Fed doesn’t have to constantly adjust the supply of money in the banking system to control interest rates.

controls interest rates by setting the interest rate it pays banks on their reserves

Question 12

3 factors that caused the financial crisis

Answer 12

Housing bubble, loose regulation and the failure of the lemin brother bank

Question 13

21. Suppose that Brazil is worried that the local currency, the Real, is likely to depreciate sharply and reduce much needed foreign financial investment into the country. How could the Brazilian central bank respond to keep the foreign investments coming?

Answer 13

It should itghten economic policy which would increase intrest rates and attract foreing investments

Question 14

Solve this: 11. Northwest National Bank received new demand deposits (DD) of $1,650,000. The current reserve requirement is 6 percent. The bank has $80,000 in vault cash and $110,000 at the Federal Reserve that is not yet invested. How much in excess reserves does the bank have available to make new loans?

Answer 14

Total reserves = $80,000 + $110,000 = $190,000
Required reserves = $1,650,000*0.06 = $99,000
Excess reserves = $190,000 - $99,000 = $91,000