ECON 104 Lecture Notes - Lecture 12: United States Treasury Security, Open Market Operation, Risk-Free Interest Rate

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25 Apr 2017

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The fed decides and tells the bank how much the bank must keep in the reserve. The things the fed can do to affect mone yin the market. The fed can sell bonds to borrow money. The fed can buy bonds to increase money in the market. The fed can increase/decrease the required reserve ratio so that banks lend more or less. The interest rate that banks pay to the fed to borrow from it. When banks increase their borrowing, the money supply increases. The discount rate changes but cannot be changed too often, around 3 months or so. The open market operations can be done every day or week if necessary. Most people are confused by this: the treasury bills is not controlled by the fed: treasury bills does the printing. 2 aims: wants the gdp to grow, best policy is a low interest rate, however, also make sure inflation does not increase too much.

Related Questions

1. Which of the following are examples of expansionary monetary policy?

increase discount rate

decrease reserve requirement

buy bonds

sell bonds

	I and III only
	II and III only
	I and IV only
	II and IV only
	I, II, and III only

2. The discount rate is

	the rate the Fed charges member banks to borrow money.
	set directly by the Fed through monetary policy.
	the rate banks charge each other to borrow money.
	set directly by the Fed through fiscal policy.
	the rate banks charge their best customers to borrow money.

3. If during an economic expansion, U.S. financial investors begin to buy stocks increasing the demand for money, what action could the Federal Reserve take to prevent inflation in the economy?

	Increase the discount rate
	Decrease the discount rate
	Buy bonds on the open market
	Decrease the required reserve ratio
	Extend credit to overseas markets

15. In 2008, as homeowners defaulted on their mortgages and many financial institutions holding these mortgages ran into trouble, the Federal Reserve both lowered the discount rate and began purchasing mortgage backed securities through open market operations. Other things the same, this should have caused banks to: A. borrow less from the Fed and lend less to the public; thereby, decreasing the amount of money in the economy B. borrow less from the Fed and lend more to the public; thereby, increasing the amount of money in the economy C. borrow more from the Fed and lend less to the public; thereby, decreasing the amount of money in the economy D. borrow more from the Fed and lend more to the public; thereby, increasing the amount of money in the economy

1. Which of the following both increase the money supply?

an increase in the discount rate and an increase in the interest rate on reserves
an increase in the discount rate and a decrease in the interest rate on reserves
a decrease in the discount rate and an increase in the interest rate on reserves
a decrease in the discount rate and a decrease in the interest rate on reserves

2. In the U.S., the average adult holds about $3,700 in

currency.
wealth.
M1.
M2.

3. The measure of the money stock called M1 includes

wealth held by people in their checking accounts.
wealth held by people in their savings accounts.
wealth held by people in money market mutual funds.
everything that is included in M2 plus some additional items

4. When the Fed decreases the discount rate, banks will

5. Reserve requirements are regulations concerning

the amount banks are allowed to borrow from the Fed.
the amount of reserves banks must hold against deposits.
reserves banks must hold based on the number and type of loans they make.
the interest rate at which banks can borrow from the Fed.

6. When we say that trade is roundabout we mean that

people sometimes trade goods for goods.
trades require a double coincidence of wants.
currency is accepted primarily to make further trades.
people must spend time searching for the products they wish to purchase.

7. Values of Assets

Asset	Amount in $Billions
Small-time deposits	780
Large time deposits	1,700
Demand deposits	450
Other checkable deposits	370
Savings deposits	4950
Traveller's checks	5
Money market mutual funds	740
Currency	880
Miscellaneous categories of M2	50

Refer to Value of Assets. What is the value of M1 in billions of dollars?

1705
2485
6295
7075

8. In 1991, the Federal Reserve lowered the reserve requirement from 12 per cent to 10 per cent. Other things the same this should have

increased both the money multiplier and the money supply.
decreased both the money multiplier and the money supply.
increased the money multiplier and decreased the money supply.
decreased the money multiplier and increased the money supply.

9. Consider four survivors on an island.

Rupert	has machete	wants fishing spear
Amber	has cooking pot	wants fishing spear
Rob	has fishing spear	wants machete
Tom	has cooking pot	wants machete

Which of the following pairs of survivors has a double-coincidence of wants?

Rupert with Amber, and Rob with Tom
Amber with Tom
Rupert with Rob
None of the above is correct.

10. Economists use the term money to refer to

all wealth.
all assets, including real assets and financial assets.
all financial assets, but not real assets.
those types of wealth that are regularly accepted by sellers in exchange for goods and services.

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ECON 104 Lecture Notes - Lecture 12: United States Treasury Security, Open Market Operation, Risk-Free Interest Rate

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