ECON 2002.01 Lecture Notes - Lecture 21: Federal Funds Rate, Dual Mandate, United States Treasury Security

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azuredolphin418

19 Mar 2019

School

Ohio State University

Department

Economics

Course

ECON 2002.01

Professor

Darcy A Hartman

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ECON 2002.01 Lecture Notes - Lecture 18: Fractional-Reserve Banking, Excess Reserves, Reserve Requirement

ECON 2002.01 Lecture Notes - Lecture 21: Federal Funds Rate, Dual Mandate, United States Treasury Security

ECON 2002.01 Lecture Notes - Lecture 23: Federal Open Market Committee, Open Market Operation, Money Supply

Document Summary

Bank run : everyone tries to take their money out of a bank at the same time. Bank panic : when a bank run happens to multiple banks at the same time. 1913- federal reserve established; central bank of the us, purpose was to avoid bank panics; lender of last resort. Since the depression its goals have been: Monetary policy : actions of the fed to manage the money supply and interest rates to achieve economic goals. In long run, if the fed keeps inflation low, they are in better position to lessen the impact of a recession. High employment, goal of other branches as well, causes dual mandate for the fed (both dealing with inflation and unemployment) Stability of financial markets and institutions (investment banks) Economic growth - not so much in their control in the long run rgdp. Open market operations (buying/selling of treasury securities) Buying is an expansionary policy, ad increases.

Related Questions

6. Other things beingâ equal, the M1 money supply varies in the same direction as the magnitude of

A.âk, theâ currency/DDO ratio

B.rrâ , the average required reserve ratio

C.âre, theâ banksâ desired excess reserves ratio

D.none of the above

7. Suppose that discounts and advancesâ (Fed loans of reserves toâ banks) increaseâ $200 million, Treasury deposits at the Fed increaseâ $500 million, and the Fed buysâ $700 million of Treasury bills from dealers. The net effect of these 3 transactions is to

A.increase bank reserves byâ $1,000 million

B.increase bank reserves byâ $1,400 million

C.increase bank reserves byâ $400 billion

D.leave bank reserves unchanged

8. Other things being equalâ (assuming the Fed takes noâ action), a sharp increase in interest rates caused by market forces in a strong economic recovery is likely to

A.increaseâ k, the currencyâ ratio, thus reducing the money supply

B.reduce the monetaryâ base, thus increasing the money supply

C.reduce reâ , the desired excess reserveâ ratio, thus increasing the money supply

D.do none of the above

9. The Federal Reserve is able to control most accurately in the short run

A.âB, the monetary base

B.âk, the currency ratio

C.reâ , theâ bankâs desired excess reserve ratio

D.M1, the U.S. money supply

10. The Federal Reserve implementedâ âoperation twistâ inâ 2011-2012 by

A.simultaneously buyingâ long-term and sellingâ short-term Treasury securities

B.heavy purchases of bothâ long-term andâ short-term Treasury securities

C.lowering the federal funds rate target and buyingâ long-term bonds

D.purchasingâ short-term securities and buyingâ mortgage-backed bonds

11. Duringâ 2008-2014, Fed Chairman Ben Bernanke drew a lot of criticism for

A.maintainingâ short-term interest rates at extremely low levels for an extended period

B.bailing out large banks that would otherwise have failed

C.conducting the quantitative easing policy for about six years

D.all of the above

1. Which of the following is likely to happen if the Fed buys Treasury securities from banks?

interest rate rises; investment falls

interest rate rises; investment rises

interest rate falls; investment rises

interest rate falls; investment falls

2. The main goal of monetary policy is to shift

3. Which of the following is true regarding the effects of an expansionary monetary policy?

Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run.

Printing more money will affect real GDP both in the short and long run because inflation is a natural occurrence of expansionary monetary policy.

Printing more money will not lower the value of money in the short run because prices are fully flexible in the short run.

Printing more money will ultimately raise the value of money in the long run because prices are fully flexible in the long run.

4. In which of the following cases are you likely to be adversely affected by unexpected inflation?

You, the owner of a local restaurant, charge the price of lamb lasagna as per the daily market rate of lamb.

You purchase Mountain Dew every day from the dormitory vending machine, which keeps its prices fixed for the entire school year.

You, the owner of an airline company, sign a two-year contract for airline fuel.

You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%.

5. The Phillips curve depicts the relation between

real GDP and price level.

price level and inflation rate.

unemployment rate and inflation rate.

unemployment rate and real GDP.

6. Which of the following statements is true regarding the shapes of short-run and long-run Phillips curves?

The short-run Phillips curve is vertical and the long-run Phillips curve is downward sloping.

The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical.

Both the short-run and long-run Phillips curves are downward sloping.

Both the short-run and long-run Phillips curves are vertical.

7. Suppose the table below lists the actual annual inflation rates for 2010 to 2015. What would be the most likely predictions people make about the inflation rate for 2016 based on adaptive and rational expectations theories, respectively?

Year	Actual Inflation rate
2010	0%
2011	0%
2012	3%
2013	3%
2014	6%
2015	6%

8. Which of the following can change relatively quickly in the short-run?

the price of a latte in a coffee shop

the salary of a finance professor

the rent paid for a store

copperherring529

In a speech in 2017, Fed Chair Janet Yellen described the long-run federal funds rate that is consistent with achieving the Fed's mandate of high employment and price stability as the "neutral rate," which she estimates to be about 3 percent. Yellen noted that: "Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road long dash either too much inflation, financial instability, or both. In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession."

Source: Janet Yellen, "The Goals of Monetary Policy and How We Pursue Them," Speech at the Commonwealth Club, San Francisco, California, January 18, 2017.

Why is it potentially a problem for the Fed to "wait too long" to raise its target for the federal funds rate? Can't the Fed just wait until inflation increases and begin to slowly increase the target at that time?

A. Monetary policy works with a lag that can be up to 18 months.

B. Prices change slowly due to menu costs.

C. Legislation takes time to implement.

D. Consumers are irrational.

Why might interest rates that are too low lead to financial instability?

A. Interest rates that are too low could result in higher unemployment.

B. Rates that are too low could lead to speculative bubbles in stocks and other financial assets.

C. Low-interest rates could lead to deflation.

D. Rates that are too low could lead to a situation of hyperinflation.

Why might the Fed rapidly increasing its target for the federal funds rate push the economy into recession?

A. In this situation, increasing the target for the federal funds rate increases aggregate demand by increasing investment.

B.A rapidly increasing federal funds rate target would decrease employment by lowering wages.

C.The Fed rapidly increasing its federal funds' rate target increases unemployment by increasing net exports.

D.Increasing the target for the federal funds rate decreases GDP by reducing consumption.

ochrecicada645

ECON 2002.01 Lecture Notes - Lecture 21: Federal Funds Rate, Dual Mandate, United States Treasury Security

ECON 2002.01 Lecture Notes - Lecture 18: Fractional-Reserve Banking, Excess Reserves, Reserve Requirement

ECON 2002.01 Lecture Notes - Lecture 21: Federal Funds Rate, Dual Mandate, United States Treasury Security

ECON 2002.01 Lecture Notes - Lecture 23: Federal Open Market Committee, Open Market Operation, Money Supply

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