The Fed and Central Banks
What is responsible for conducting monetary policy and ensuring a smooth operation of the nations financial system?
The Central Bank
What does the FDIC stand for?
The Federal Deposit Insurance Corporation
True or false:
When the money supply in banks falls, market interest rates rise
true
True or False:
when the federal funds rate drops substantially, other interest rates rise
false
expansionary monetary policy may not work well when?
Banks are choosing to hold excess reserves
Name three prominent Central Banks according to the textbook
The European Central Bank, the Bank of Japan, and the Bank of England
What is a bank run?
depositors racing to the bank to withdraw their deposits
When do open market operations take place?
When the Central Bank sells or buys U.S. Treasury bonds to influence the amount of bank reserves and the level of interest rates
How did the Federal Reserve typically react to higher inflation?
With a contractionary monetary policy and a higher interest rate
What is the equation for velocity?
nominal GDP over money supply
How long is an appointment for the Board of Governors?
A 14-year term
What is bank regulation intended to maintain?
banks solvency
What are the three tools a Central Banks has to implement monetary policy?
Open market operations, changing reserve requirements, and changing the discount rate
An expansionary monetary policy will shift the supply of loanable funds in which direction?
To the right
Which model do economists use to determine the level of potential GDP by real economic factors?
The neoclassical model
When was Janet L. Yellen the Fed chair
From 2014-2018
What will happen if a bank supervisor finds out a bank has a low/negative net worth or is making too many risky loans?
They can require a behavior change from the bank or force the bank to close or be sold
What happens when a Central Banks sells bonds?
The money from individual banks is flowing into the central bank and reducing the amount of money in the economy
Which two components of aggregate demand will be reduced if contractionary monetary policy creates higher interest rates and a reduced quantity of loanable funds?
Business investment will decline and firms that have money will notice that it is a better idea to put those funds in a financial investment than to make an investment in physical capital.
When did the dot-com boom take place?
1994-2000
What Federal Reserve district are Alaska and Hawaii part of?
The San Francisco district
What is the lender of last resort role?
Lending money to other banks and financial institutions because they can't obtain funds anywhere else
What is the term for the percentage of each bank’s deposits that it is required to hold?
Reserve requirement
With the 2008 recession, the Fed decided to adopt which nontraditional policy?
Quantitative easing
Deflation was 6.7% per year from?
1930-1933