ECO 105 Chapter Notes - Chapter 13: Monetary Policy, Open Market Operation, United States Treasury Security

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5 May 2016

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Expansionary monetary policy: policy that increases money supply & decreases interest rate & tends to increase both investment & output. Contractionary monetary policy: policy that decreases money supply. & increases interest rate, & tends to decrease both investment & output. Ability to create 11600 gives central bank the power to control monetary policy. Duties of the fed: conducts monetary policy (influencing supply of 11600 & credit in the economy, supervises & regulates financial institutions, leader of last resort to financial institutions, provides banking services to the u. s. gov"t. 5: provides financial services to commercial banks, savings & loan. Issues coin & currency associations, savings banks & credit unions. Reserve requirement & money supply: reserve requirement: % that fed sets as minimum amount of reserves a bank must have, there are other ways the fed can impact banks" reserves: Fed can directly add to banks" reserves. Fed can change interest rate it pays banks" on their reserves.

Related Questions

(Monetary Policy and an Expansionary Gap) Suppose the Fed wishes to use monetary policy to close an expansionary gap.

a. Should the Fed increase or decrease the money supply?

b. If the Fed uses open-market operations, should it buy or sell government securities?

c. 10. Determine whether each of the following increases decreases, or remains unchanged in the short run: the market interest rate, the quantity of money demanded, investment spending, aggregate demand, potential output, the price level, and equilibrium real GDP.

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(Monetary Policy and an Expansionary Gap) Suppose the Fed wishes to use monetary policy to close an expansionary gap.
a. Should the Fed increase or decrease the money supply?
b. If the Fed uses open-market operations, should it buy or sell government securities?
c. 10. Determine whether each of the following increases decreases, or remains unchanged in the short run: the market interest rate, the quantity of money demanded, investment spending, aggregate demand, potential output, the price level, and equilibrium real GDP

taupecamel175

5. Fiscal policy is enacted through changes in

A. interest rates and the price level.

B. the supply of money and foreign exchange.

C. unemployment and inflation

D. taxation and government spending.

6. In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

A. increase taxes by $16 billion.

B. increase taxes by $24 billion.

C. decrease government spending by $10 billion.

D. decrease government spending by $16 billion.

7. If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

A. contractionary fiscal policy.

B. no change in fiscal policy.

C. expansionary fiscal policy.

D. countercyclical fiscal policy.

8. Most economists believe that fiscal policy is:

A. better than the monetary policy for "fine-tuning" the economy.

B. better than the monetary policy for month-to-month stabilization.

C. not as good as the monetary policy for month-to-month stabilization.

D. not very good at pushing the economy in a particular direction.

9. An increase in the legal reserve ratio

A. increases the money supply by increasing excess reserves

B. decreases the money supply by decreasing excess reserves

C. increases the money supply by decreasing excess reserves

D. decreases the money supply by increasing excess reserves

10. The discount rate is the rate of interest at which

A. Federal Reserve Banks lend to commercial banks

B. savings and loan associations lend to some builders

C. Federal Reserve Banks lend to large corporations.

D. commercial banks lend to large corporations

11. Which of the following actions by the Fed most likely increase commercial bank lending?

A. raising the reserve ratio

B. increasing the federal funds rate target

C. reducing the interest paid on excess reserves held at the Fed

D. selling bonds to commercial banks and the public

12. Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ______, which will ______ investment spending.

A. decrease; decrease

B. decrease; increase

C. increase; increase

D. increase; decrease

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ECO 105 Chapter Notes - Chapter 13: Monetary Policy, Open Market Operation, United States Treasury Security

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