ECON 002 Lecture Notes - Lecture 17: Money Multiplier, Real Interest Rate, Federal Direct Student Loan Program

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cerisegiraffe538

26 Mar 2015

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Econ-002: macro economics lecture 17 money, the monetary system, and. Change the reserve requirement: does not change that often. Paying interest on excess reserves (change money multiplier: give an incentive to keep extra reserve. Discount window (discount rate change the money multiplier: interest rate charged by fed for loans given to the banks. Unconventional monetary policy: happened during the recession bail out. This is an expansionary policy: fed buys other assets treasure bills from banks, in this case, banks will have excessive reserves to loan out (lower interest rate as well), gdp goes up. Interest rate on direct loans from the fed to private banks. Historically, not really keen in giving out loans. Usually give out when in financial hard times. What do we look at when looking at assets: risky, return, liquefy. Md = p * ld (y, r+inflation: p: aggregate price level, md = money demand (for m1, ld = demand for liquidity function.

Related Questions

1. A restrictive monetary policy by the Fed should lead to:

A. A decrease in investment and an increase in aggregate demand.

B. Leave investment unchanged but decrease aggregate demand.

C. An increase in investment and an increase in aggregate demand.

D. A decrease in investment and a decrease in aggregate demand.

2. When the Federal Reserve uses open market operations (OMO) in an expansionary monetary policy:

A. The Fed will purchase stocks from banks, increasing the monetary base.

B. The Fed will buy bonds from banks, increasing bank reserves and increasing the monetary base.

C.The Fed will lower taxes and increase government spending.

D. The Fed will decrease the discount rate, decreasing the monetary base.

3. A primary goal of monetary policy is to:

A. Eliminate trade barriers from other nations.

B. Maintain high interest rates.

C. Reduce the size of the banking sector.

D. Prevent high rates of inflation.

4. The major tools of monetary policy available to the Federal Reserve System involve:

A. Reserve requirements and tax policy.

B. Reserve requirements and open-market operations.

C. The discount rate and exchange rates.

D. Open-market operations and changing government spending,

coppertoad679

In an effort to move the economy out of a recession, the federal government would engage in expansionary economic policies. Respond to the following points in your paper on the actions the government would take to address expansionary fiscal and monetary policies:

Expansionary Fiscal Policy:

Explain the actions the federal government would take while engaging in expansionary fiscal policy in terms of the following:

The necessary change in taxes and government spending,

The effect on aggregate demand, GDP, and employment.

Expansionary Monetary Policy:

The three tools the Federal Reserve Bank (The Fed) uses when conducting monetary policy are the required reserve ratio, the discount rate, and open market operations.

Explain the actions of the Fed in regard to the three tools.

When the required reserve ratio is increased or decreased

When the discount rate is increased or decreased

Buying or selling government securities when conducting expansionary monetary policy

Explain how these actions would affect the money supply, interest rates, spending, aggregate demand, GDP, and employment.

raspberrygoose799

Assume that China maintains a currency peg to the U.S. dollar. If the peg was abandoned and the yuan - dollar exchange became a floating exchange rate, we can expect:

A	An increase in the rate of domestic economic growth in China.
B	An increase in U.S. interest rates as China reduces purchases of U.S. Treasury debt.
C	Europe would also abandon the peg of the euro to the dollar.
D	An appreciation of the dollar in relation to the yuan.

When the Federal Reserve uses open market operations (OMO) in an expansionary monetary policy:

A	The Fed will purchase stocks from banks, increasing the monetary base.
B	The Fed will decrease the discount rate, decreasing the monetary base.
C	The Fed will buy bonds from banks, increasing bank reserves and increasing the monetary base.
D	The Fed will lower taxes and increase government spending.

ECON 002 Lecture Notes - Lecture 17: Money Multiplier, Real Interest Rate, Federal Direct Student Loan Program

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