Monetary policy

Question 1

What is the fractional reserve banking system?

Answer 1

Where banks keep less than 100% of their deposits as reserves

Question 2

What is it called when depositors lose confidence in their bank and withdraw their money all at once?

Answer 2

Bank Run

Question 3

What causes a bank panic?

Answer 3

If a lot of banks experience a bank run

Question 4

What can break the negative feedback loop?

Answer 4

A Lender of last resort

Question 5

In 1914 what did the federal reserve system create?

Answer 5

Discount Loans

Question 6

What are discount loans?

Answer 6

Loans made to banks from the Feds charging a rate called the discount rate .

Question 7

The discount rate gives banks a cheaper rate. True or False?

Answer 7

False

Question 8

Why do economists feel that the federal reserve caused the great depression to worse?

Answer 8

They didn’t lend to all the banks that needed help feeling that it would create “Bad Practice”.

Question 9

How many federal reserve system locations are there?

Answer 9

12

Question 10

How long do they serve on the board of governors?

Answer 10

Non-renewable 14 year term

Question 11

How long is the term for someone who is appointed chair on the board of governors?

Answer 11

4 year renewable term

Question 12

What does FOMC stand for?

Answer 12

Federal Open Market Committee

Question 13

How many members are in the FOMC?

Answer 13

12 Members, including 7 from the board of governors and 5 federal Presidents

Question 14

What does the FOMC do?

Answer 14

Conducts America’s monetary policy

Question 15

What is monetary policy?

Answer 15

The actions the federal reserve takes to manage money supply and interest rates to pursue macroeconomic policy objectives

Question 16

What are the main federal tools for managing?

Answer 16

Open market operations, discount policy, Reserve requirements

Question 17

What is the open market operation

Answer 17

The buying and selling of treasury securities by the federal reserve in order to control the money supply

Question 18

How does the Fed increase money supply?

Answer 18

The trading desk in New York will buy U.S treasury securities (Bills, notes, and bonds)

Question 19

What happens to the loan and money supply when the discount rate is decreased?

Answer 19

Loans and money supply are increased

Question 20

What happens to the loan and money supply when the discount rate is increased?

Answer 20

Loans and money supply are decreased

Question 21

What happens when the reserve requirements are increased?

Answer 21

Loans and money supply are decreased

Question 22

What happens when the reserve requirements are decreased?

Answer 22

Loans and money supply are increased

Question 23

How can the feds increase money supply?

Answer 23

Buy treasury security, Decrease the discount rate, Decrease reserve ratio

Question 24

What are the four goals of monetary policy?

Answer 24

1.) Price Stability
2.) High Employment
3.) Stability of financial markets and institutions
4.) Economic Growth