Economics Chapter 16

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How well did the Federal Reserve Banks perform during the great depression

Individual governors of the Federal Reserve Banks disagreed over policy and were unable to stop the depression

Board of governors

The Federal Reserve system is overseen by these people they are headquartered in Washington it’s seven members who are appointed for staggered 14 your terms by the president of the US

Monetary policy

Refers to the actions the fed takes to influence the level of real GDP and the rate of inflation in the economy

Federal reserve districts

Seattle Portland San Francisco Salt Lake City Los Angeles Alaska Hawaii Chicago Detroit Philadelphia

Federal advisory Council (FAC)

Collects information about each district and reports to the board of governors about economic conditions within their districts it consists of one member from each Federal Reserve District 12 members and all their main function is to provide feedback and advice to the board of governors concerning the overall financial health of each district they meet with the board of governor four times a year

Federal open market committee (FOMC)

Makes key decisions about interest rates in the growth of the nation’s money supply this committee meets about eight times a year and private to discuss the cost and availability of credit for business and consumers across the country. Announcements of their decisions can affect the financial markets in the rates of home mortages , and many other economic institutions around the world

What is the make up of the Federal Reserve’s district

Each district is made up of more than one state federal reserve districts include a mixture of agriculture manufacturing and service industries as well as rural & urban areas

What is the role of the federal open market committee?

It makes key decisions about interest rates and the growth of the United States money supply

Who appoints the members of the board of governors of the federal reserve

The US president

What was one reason the US government started a federal reserve system

To provide consumers with access to funds for business expansion

Why are the board of governors of the Federal Reserve appointed for staggered 14 year terms

To protect board members from political pressures

Why does the Federal Reserve system have a high degree of political independence

The system is owned by the banks

Monetary policy is the…

Action the Federal Reserve text influence the level of real GDP in the right inflation in the economy

In 1935, what changes were made to the Federal Reserve system

The Federal Reserve system is getting more centralized power

Why were many US citizens against the second bank of United States, which was an attempt by Congress to restore order in the monetary system in 1816

Citizens feared that is central bank placed too much power in the hands of the federal government

The research arm of the Federal Reserve is the

Federal Advisory Council

Check clearing

Is the process by which banks record whose account gives of money in his account receives money when a customer write the check. The feds can clear millions of checks at one time using the high-speed equipment. Most checks clear within two days a remarkable treatment when you consider that the Fed deals with about 20 billion checks per year

Bank holding company

A company that owns more than one bank

Federal funds rate

The interest rate the banks charge each other for these loans

Discount rate

The rate the Federal Reserve charges for loans

What does lender of last resort mean with respect to the federal reserve

It will lend money to a bank in a financial emergency

Who issues US paper currency

The district Federal Reserve Banks

Net worth

Equals total assets minus total liabilities

What does fractional reserve banking system mean

One that keeps only a small part of customers deposits on hand

What is this Federal Reserve best known for

For regulating the nation’s money supply

Why does a high interest-rate discourage people from holding the money in cash

They can earn interest on the cash if it is invested

Which of the following is one way the Federal Reserve Bank serves the government

Selling government securities

Bank examiners are

Authorized for spanks to sell off investments that they consider excessively risky

What is the relationship between interest rates and the man for money

As interest rates decrease the man for money increases

In the United States what does the general Level of a family’s income have to do with the amount of cash that family is likely to hold

The higher the real income, the more cash the family will hold

As interest rates rise

It becomes more expensive the hold money as cash

What is the federal funds rate

interest-rate banks charge each other for long

What is it called when banks record which account gets that money in which account receive the money when a customer write a check

Check Clearing

Truth-in-lending law requires that

Sellers provide full and accurate information about loan terms

The rate the federal reserve charges for loans to commercial banks is called ___.

The discount rate

Required reserve ratio

The fraction of the deposit that must be kept on reserve

Money multiplier formula

The amount of new money that will be created with each demand deposit. It’s calculated 1 \ RRR. Increase in money supply = initial cash deposit x 1 (over) RRR.

Excess Reserves

Reserves greater that the required amounts

If the money multiplier is 4, what is the required reserve ratio?


As commercial banks keep more excess reserves, what happens to money creation?

It decreases

Prime Rate

The rate of interest that banks charge on short term loans to their best customers- usually large companies with good credit rating.

Open market operations

Most important monetary policy tool. Try a re the buying & selling of government securities to alter supply of money.

Open market operations are

The buying and selling of government securities to alter the supply of money

What is the most used instrument for controlling week-to-week changes in the money supply

Open market operations

Why does the Fed rarely increase reserve requirements?

It can be disruptive to the whole banking system

What is the required reserve ratio

The portion of a deposit that a bank must keep on hand

What is the policy used most by the fed to change the money supply

Open market operations

If the feds were imposed a slight increase in the required reserve ratios, there would be____.

A decrease in the money supply

How could the Federal Reserve encourage banks to lend out more of the reserves

By reducing the discount rate

If the required reserve ratio is 20% and the customer deposited $5000 in the bank I much is available to the bank for lending


Why does the bank sometimes hold excess reserves

To be sure it can meet its customers demands

Money multiplier formula

Determines the amount of money that will be created with each demand deposit

Which of the following would create the most money

Positive 6500 and the required reserve ratio is 20%

The following tools is an example of monetary policy

Changing reserve requirements

Easy money policy

Increase the money supply

Tight money polucy

It will reduce the money supply

Why does the Federal Reserve alter monetary policy

To lessen the fact of metro business cycles

What does the monetary policy do

It alters the supply of money

Indie lag

Delays in implementing policy

Outside lag

Difference for monetary and fiscal policy

How quickly can and increasing government spending increased the gross domestic product

6 momths

What does fiscal policy include

Changes in government spending and taxation

What is likely to be the best approach to recession that is expected to turn into an expansion in a short time

Do nothing and let the economy fix itself

Which of these situations is most likely to cause the Fed to introduce a tight money supply

Economy is expanding quickly in inflation is a concern

Which of the following is an example of inside like in monetary policy

Members of the board of governors refuse to lower the discount rate until several months after your session has begun

What monetary policy should be implemented to correct inflationary economy

Tight monetary policy

What change and monetary policy could eventually cause over borrowing and overinvestment

An increase in the money supply

tight money policy is…

Monetary policy that reduces the money supply

What is the main idea of monetarism

The money supply is the most important factor in economic performance

What is a delay and implementing monetary policy called

Inside lag

Monetary policy ministered by the Fed is the principal method of softening the fax of the business cycle because

There are more political complications with determining and implementing Fiscal policy

Monetary policy makers can help smooth out the fluctuations of business cycle by

Reacting to current trends

What is one possible short-term effect of an easy money policy

Increased investment spending

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