ECON 1BB3 Study Guide - Midterm Guide: Business Cycle, Homeless Shelter, Loanable Funds

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greendinosaur870

20 Sep 2016

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes

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Document Summary

It will have 000 in excess reserves. It will need to raise reserves by . It will have 000 in excess reserves. With deposits (and withdrawals), there is an immediate change and an after-adjustments change: since the q asks about the bank"s reserve position, we are looking at the immediate change not the long run effect. Remember that when the teller takes k they do not immediately loan out 90% but rather they just put the full amount into their til/vault. After adjustment is when they loan out 90% of their excess afterwards usually takes a day or some period of time for that to happen. This will affect the t-balance sheet as such: reserves increase by 50k. Loansa re not affected b/c we are looking only at the immediate term, that is, the bank has not yet loaned out any of the deposit: deposits increase by 50k.

Related Questions

QUESTION 46

When the Fed buys a U.S. bond in the open market

		its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.
		its action expands total reserves and the money supply.
		its action contracts total reserves and the money supply.
		total reserves increase by the amount of the purchase but the money supply stays the same.

1.11 points

QUESTION 47

When the Fed sells government securities,

		reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities.
		reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities.
		reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities.
		reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities.

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QUESTION 48

The maximum potential money multiplier is equal to

		the reserve ratio.
		one minus the reserve ratio
		the inverse of the required reserve ratio.
		the number of dollars on reserve.

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QUESTION 49

The potential money multiplier gives us

		the growth in the money supply when income increases.
		the growth in real national income when the money supply increases.
		the maximum potential change in the money supply due to a change in income.
		the maximum potential change in the money supply due to a change in reserves.

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QUESTION 50

An increase in the reserve ratio

		increases the money multiplier.
		will cause banks to make more loans.
		has an expansionary effect on the money supply.
		has a contractionary effect on the money supply.

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QUESTION 51

The Federal Deposit Insurance Corporation insures

		banks against lawsuits.
		the deposits held in member banks.
		the deposits held in the Fed.
		the federal funds market.

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QUESTION 52

Bank runs are a possibility because

		in difficult times people want currency instead of demand deposits.
		the FDIC is inefficient.
		banks do not keep enough reserves to cover all their depository liabilities.
		bankers are often poor businesspeople.

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QUESTION 53

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

		make riskier loans than they otherwise would.
		reject some loans that probably would be profitable.
		maintain excess reserves that are too great.
		be too conservative in their lending practices.

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QUESTION 54

The Federal Deposit Insurance Corporation

		discourages banks from engaging in excessive risk taking.
		was established after the Panic of 1907.
		only insures deposits in money-center banks.
		increases the stability of the banking system by reducing the likelihood of bank runs.

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QUESTION 55

What are the two features of money that distinguish it from all other goods in the economy?

		Money is government issued and it is redeemable for gold or silver.
		Money is part of every barter transaction and it is divisible.
		Money is accepted as a medium of exchange and it is the common unit of account used to express prices.
		Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate.

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QUESTION 56

Holding money to meet unplanned expenditures and emergencies is known as

		asset demand.
		precautionary demand.
		aggregate demand.
		transactions demand.

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QUESTION 57

When people want to hold money to make regular planned expenditures, this is

		the transaction demand for money.
		the spending demand for money.
		the asset demand for money.
		the precautionary demand for money.

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QUESTION 58

When interest rates rise, the transactions demand for money usually

		decreases.
		increases.
		decreases initially and then increases to the original position.
		does not change.

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QUESTION 59

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

		increases, and the money demand curve shifts to the right.
		remains constant, and the money demand curve remains the same.
		decreases, and the money demand curve shifts to the left.
		increases, and the money demand curve shifts to the left.

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QUESTION 60

One of the economic costs of holding currency is that

		it fulfills no precautionary role.
		it fulfills no transactions role.
		it earns no interest income.
		its real value always increases.

blacktrout920

Each Federal Reserve Bank is

Answer

		a corporation.
		a government owned enterprise.
		a government subsidized entity.
		a government-sponsored enterprise.

A transaction in which the Fed agrees to buy a security one day and sell it back the next day is

Answer

		an overnight securitization operation.
		a repurchase agreement.
		a legal tender.
		a rebate sale.

The Federal Reserve document that states the goals of the FOMC and the target for the federal funds rate is known as the

Answer

		Directive.
		Beige book.
		Bluebook.
		Green book.

How long is the normal term in office for a Governor of the Federal Reserve Board?

Answer

		Five years
		Seven years
		Fourteen years
		Life

The federal funds rate is the interest rate on

Answer

		loans to banks from the Fed.
		loans by banks to the Fed.
		short-term loans between banks.
		Treasury bills.

Expenditures of each Federal Reserve Bank are approved by

Answer

		the U.S. Senate.
		the President of the United States.
		the U.S. Treasury Department.
		the Federal Reserve Board of Governors.

Federal Reserve Banks pay for their central banking operations through

Answer

		government tax revenue.
		interest on the securities they own.
		fees charged to banks that use their services.
		dividends paid by local banks.

When the Fed engages in open-market operations, the transactions are conducted by

Answer

		the Open Market Desk at the Federal Reserve Bank of New York.
		the Open Market Desk at the Federal Reserve Board in Washington, D.C.
		the National Bureau of Economic Research.
		the Federal Open Market Committee.

In 2006, Chairman Greenspan left the Fed because

Answer

		President Bush wanted him to resign.
		he reached mandatory retirement age.
		his term as Governor expired.
		his term as Chairman expired.

The Federal Reserve publication that discusses forecasts for the economy is known as the

Answer

		Redbook.
		Beigebook.
		Bluebook.
		Greenbook.

The FOMC directive

Answer

		describes forecasts for the economy.
		states the target for the federal funds rate.
		discusses the regional economies around the country.
		shows the Fed's balance sheet.

The chairman of the Federal Reserve Board who reduced the inflation rate from over 10 percent to about 3 percent in the early 1980s was

Answer

		Arthur Burns.
		G. William Miller.
		Paul Volcker.
		Alan Greenspan.

Which Fed chairman ensured the independence of the Federal Reserve in the 1950s?

Answer

		William McChesney Martin
		Arthur Burns
		Paul Volcker
		G. William Miller

There are ____ Federal Reserve Banks.

Answer

		seven
		ten
		twelve
		fifteen

Purchases and sales of government securities in the secondary market are known as

Answer

		discount borrowing and lending.
		federal funds purchases and sales.
		discounting.
		open-market operations.

The monetary base can be divided into

Answer

		currency plus transactions deposits.
		vault cash plus reserves held at the Fed.
		required clearing balances plus currency.
		reserves plus currency.

The Fed does not generally change reserve requirements to affect the money supply because

Answer

		the impact is too large.
		the Fed needs the approval of Congress to do so.
		it's not legal for the Fed to do so.
		the Fed needs the approval of the President of the United States to do so.

The Fed has decided to tighten monetary policy, so it decreases the money supply through

Answer

		defensive open-market operations.
		dynamic open-market operations.
		reduced discount loans for profit.
		reduced discount loans for business needs.

A haircut is

Answer

		the extra collateral the Fed requires above the value of a discount loan.
		the extra principal a commercial bank requires the Fed to pay when making a discount loan.
		the difference between what an investor pays for a bond and what the investor sells the bond for.
		expected personal grooming for a member of the Board of Governors.

Currency held by the nonbank public plus banks' vault cash plus banks' deposits at the Fed equals

Answer

		the Fed's capital stock.
		discount loans.
		the monetary base.
		required clearing balances.

The extra collateral the Fed requires above the value of a discount loan is known as

Answer

		the term premium.
		a haircut.
		a covenant.
		secondary credit.

Currency held by the nonbank public plus banks' reserves equals

Answer

		the Fed's capital stock.
		discount loans.
		the monetary base.
		required clearing balances.

The money supply divided by the monetary base equals

Answer

		the reserve ratio.
		velocity.
		high-powered money.
		the money multiplier.

The main liability on the Federal Reserve's balance sheet is

Answer

		discount loans.
		securities.
		monetary base.
		capital.

A bank in good condition may take out a loan without the Fed questioning the purpose or nature of the loan. Such a loan is known as

Answer

		a no documentation discount loan.
		a haircut.
		a covenant.
		a primary credit discount loan.

If the Open-Market Desk at the Fed buys securities when the federal funds rate is below the primary credit discount rate, the most likely effect is that the

Answer

		federal funds rate decreases.
		primary credit discount rate decreases.
		primary credit discount rate increases.
		federal funds rate increases.

In November and December, people use more currency than usual, so the Fed increases the money supply through

Answer

		defensive open-market operations.
		dynamic open-market operations.
		discount loans for profit.
		discount loans for business needs.

Reserves held by banks at the Fed that earn implicit interest payments in the form of earnings credits for Fed services are known as

Answer

		required clearing balances.
		reserve requirements.
		excess reserves.
		non-transaction deposits.

Required clearing balances

Answer

		pay interest in the form of earnings credits.
		count as reserves and can be used to meet reserve requirements.
		pay interest equal to the federal funds rate minus one percent.
		are required to be held against transactions deposits.

Hello, could I get some assistance summarizing this article for a discussion:

Read the articles and discuss the problems of Economic Inequality in the U.S.economy, summarize key points and post in the Discussions area:

Competition police crossing continents

Competition authorities are increasingly reaching beyond their country's borders

Feb 22^nd, 2014

WHEN TWO AMERICAN presidents, Theodore Roosevelt and William Howard Taft, embarked on a trustbusting mission a century ago, they were taking government into a new policy area: competition. Industrialization was still relatively new, and any monopolies that had emerged, such as the British and Dutch East India companies, had been created by governments.

The robber-baron companies of the late 19th century were accused of using their industrial muscle to drive competitors out of business. Private monopolies, the argument ran, diminished the benefits of capitalism; by definition, the existence of a monopoly made it impossible for a free market to operate.

Since then, governments have generally had some kind of competition policy, though not necessarily a coherent one. Politicians have tried to juggle several different priorities, among them putting the government in control of "strategic" industries (a category that has always included defense but often also a range of other industries, from airlines to car manufacturing, power generation, and telecoms); shielding domestic businesses from foreign ownership or competition, and protecting consumers from price-gouging.

In the past two decades, a new concern has emerged: that monopolies may be restricting innovation. The technology industry seems to have been particularly prone to creating near-monopolies, from Microsoft in software to Amazon in retailing and Google in an internet search. This is due to network effects. Consumers gravitate to the dominant technology, either because it offers more products or because many of their friends are already using the network concerned. These monopolists, it is feared, will be slow to introduce new technologies that might cannibalize their existing business; and they will be so entrenched that new competitors will find it hard to get a foothold.

Microsoft bundled its Internet Explorer browser with its dominant Windows operating software on personal computers. America's Department of Justice saw this as an attempt to force Netscape, a rival browser, out of the market. In a long court case that began in 1998, Microsoft was initially ordered to break itself in two. This ruling was overturned on appeal and a less onerous settlement was arrived at.

At the time many commentators felt that the authorities had overreached themselves. Internet Explorer was provided free of charge, so it was hard to see how consumers were being harmed. But this is a tricky area. On the one hand, rapid technological change can cause once-dominant companies to lose their position very quickly if they do not adapt; look at Nokia's and BlackBerry's mobile-phone businesses. Some argue that if the market is capable of such adjustment, governments should not get involved. The fact that some consumers make the wrong decision some of the time is not the basis for intervention, as long as all consumers are not being ripped off, says Simon Bishop of RBB Economics, a consultancy. On the other hand, such rapid change makes it hard to tell whether monopoly positions are being exploited, or whether a more competitive market would have produced more innovations.

Competition authorities have also had to rethink their role in cross-border deals. If one multinational takes over another, that might not create a monopoly in the country where the two groups have their headquarters, but it could do so in another country. A proposal for a merger between General Electric and Honeywell, announced in October 2000, was cleared by America's Department of Justice but blocked by the European Commission the following year. That objection appeared to herald a new era of transatlantic takeover disputes; in fact, it remains the only deal so far to have been cleared in America but blocked on the other side of the Atlantic.

However, there have been other instances of transatlantic disputes. In 2009 the European Commission imposed a 1.06 billion ($1.4 billion) fine on Intel, a chipmaker, after a complaint brought by an American rival, AMD. The ruling seemed to suggest that multinationals faced the prospect of double jeopardy because of inconsistent international rules.

We do it our way

There are some philosophical differences between Europe and America. Europe has a long tradition of state ownership of industry; even after privatization, many such companies retain dominant positions, at least in their national markets. In America, by contrast, market leaders have got there the hard way, by having superior technology or being more efficient. In Europe competition policy tends to be rules-based, with the European Commission issuing guidance for future mergers to follow; in America merger decisions tend to be hammered out in the courts, establishing legal precedent.

But multinationals also have to deal with competition policy in emerging markets. China is a particular challenge. The Chinese use competition policy to achieve other ends to keep out foreign firms or attack existing foreign businesses says, one expert. Latin American countries have tended to adopt the American model of competition policy, whereas eastern Europe has followed the example. Merger authorities from different countries have set up the International Competition Network to share the experience. Such efforts may reduce the double-jeopardy problems in international mergers, if only because rules may be applied more consistently.

In the longer term, the question is whether national competition policies will prove adaptable enough to cope with a globalized economy. It may make economic sense for global companies to exploit economies of scale and bring down prices for consumers, but national governments may be reluctant to accept the loss of control involved. In air travel, for example, fares have been reduced under pressure from low-cost airlines, but these newcomers are still being held back by policies that favor flagship carriers. If regulators in rich countries were to prove more zealous than their counterparts in emerging markets in restricting the size of multinationals, Western firms might be put at a competitive disadvantage.

New concerns for competition authorities are emerging all the time. Chris Walters, the acting chief economist of Britain's Office of Fair Trading (OFT), cites the practice of pay-for-delay, whereby a firm that holds a drug patent pays a generic manufacturer not to launch a rival drug to preserve the patent-holders monopoly profits. And David Currie, the chairman of the Competition and Markets Authority (which will take over from the OFT in April), recently pointed to a vast new potential problem, which he described as the growing collection, processing, and use of consumer-transaction data for commercial ends. This is proving an increasingly important source of competitive advantage; we need to be alert to the possibility that it will be an increasing source of consumer detriment.

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ECON 1BB3 Study Guide - Midterm Guide: Business Cycle, Homeless Shelter, Loanable Funds

ECON 1BB3 Full Course Notes

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