Assignment 7

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Assignment 7
2013-04-01 20:34:06

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  1. What does the Central Bank do
    • acts as a banker to the central government
    • acts as a banker to banks
    • acts as a regulator of banks
    • conducts monetary policy
    • supports the stability of the financial system
  2. list some characteristics of the central bank/fed
    it is as independent from the government as possible

    made up of 12 regional banks

    regional banks owned by commercial banks in their districts that have chosen to be members of the fed

    The members have 14 year terms to avoid conflict with the presidency
  3. Define Discount Rate
    Interest rate charged by the Fed when it lends reserves to banks
  4. Define Federal Funds Market
    a market in which banks lend reserves to one another
  5. Define Federal Funds Rate
    the interest rate charged when one bank lends reserves to another.
  6. Define Bond
    A promise made by the issuer of the bond to pay the owner of the bond a payment on a specific date
  7. Define Open-Market Operations
    the buying and selling of federal government bonds by the Fed
  8. Define Employment Act of 1946
    the first official statement of goals for macroeconomic performance in the U.S.
  9. What does the expansionary policy do?
    • pushes bond prices up
    • interest rates down, exchange rate down
    • increases investment
    • increases aggregate demand
  10. What does the contractionary policy do?
    • Pushes bond prices down
    • interest rates up, exchange rate up
    • decrease investment
    • decrease aggregate demand
  11. what policy goes with a recessionary gap and an inflationary gap?
    • recessionary gap = expansionary policy
    • inflationary gap =  contractionary policy
  12. Define Recognition Lag
    the delay between the time a macroeconomic problem arises and the time at which policy makers become aware of it
  13. Define Implementation Lag
    the delay between the time at which a problem is recognized and the time at which a policy to deal with it is enacted
  14. Define Impact Lag
    the delay between the time a policy is enacted and the time that policy has its impact on the economy
  15. Define Liquidity Trap
    Situation that exists when a change in monetary policy gas no effect on interest rates.
  16. Define Credit Easing
    policy in which a bank convinces the public that it will keep interest rates very low by providing reserves for as long as is necessary to avoid deflation
  17. how long are the lags in fiscal/monetary policy?
    fiscal policy = long implementation, short impact

    monetary policy = short implementation, long impact
  18. If the Fed purchases federal government bonds on the open market, bank reserves will _________, leading to an __________ in the money supply and __________ the fed funds rate
    increase, increase, decrease
  19. Define Gresham's Law
    tendency for low-quality money to drive high-quality money out of circulation
  20. The Federal Reserve System was established in 1913 in response to what?
    Bank Panic of 1907