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Exam 14: Monetary Policy and the Federal Reserve System

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Question 31

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Describe the strategy of inflation targeting.Why have many countries begun to use this strategy instead of targeting money growth? What are the advantages and disadvantages of inflation targeting?

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Under inflation targeting,the central ba...

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Question 32

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Suppose there was a banking crisis.The money supply would shrink by the greatest amount if the public ________ their currency-deposit ratio and the banks ________ their reserve-deposit ratio.

A) decreased; decreased
B) decreased; increased
C) increased; decreased
D) increased; increased

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Question 33

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Describe,in general terms,the strategy of monetary policy,explaining how monetary-policy tools are used to achieve the goals of monetary policy.What intermediate stages are important in going from tools to goals? What are the links between the different stages? How does the Federal Reserve use this strategy today?

The money supply is $10 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.2.Bank reserves are equal to

The leadership of the Federal Reserve System is provided by

Suppose that in Mysore,the reserve-deposit ratio is res = 0.5 - 2 i, Where i is the nominal interest rate.The currency-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function L(Y,i) = 0.5Y - 10i, Where Y is real output.Currently,the real interest rate is 5% and the economy expects an inflation rate of 5%.The money multiplier equals

Last year,the currency-deposit ratio was 0.2 and the reserve-deposit ratio was 0.2.Over the past year,the public changed its currency-deposit ratio,to which the Fed responded by reducing the reserve-deposit ratio to 0.15,to keep the money supply from changing and keeping the same monetary base.Calculate the new currency-deposit ratio.Show your work.

Which of the following best describes the relationship between the Fed funds rate and the discount rate,beginning in 2003?

Suppose that in Mysore,the reserve-deposit ratio is res = 0.5 - 2i, Where i is the nominal interest rate.The currency-deposit ratio is 0.2 and the monetary base equals 100.The real quantity of money demanded is given by the money demand function L(Y,i) = 0.5Y - 10i, Where Y is real output.Currently,the real interest rate is 5% and the economy expects an inflation rate of 5%.The money supply equals

The Fed can reduce the money supply by reducing

When monetary policy works by affecting the supply and demand for credit,the mechanism is referred to as

Worries about the zero bound from 2002 to 2005 led the Fed to

A bank run is

The currency-deposit ratio is determined by

In a fractional reserve banking system with no currency where res is the ratio of reserves to deposits,the money multiplier is

The money supply is $12.5 million,currency held by the nonbank public is $2.5 million,and the reserve-deposit ratio is 0.25. (a)What is the quantity of bank deposits? (b)What is the quantity of bank reserves? (c)What is the quantity of the monetary base? (d)What is the money multiplier (give a number)?

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $30 million.Bank reserves are equal to

Suppose the following statistics are available for the economy: CU = $60 billion RES = $100 billion DEP = $1000 billion (a)Calculate the size of the monetary base,the money supply,the reserve-deposit ratio,the currency-deposit ratio,and the money multiplier. (b)Suppose the currency-deposit ratio rises to .10,while the reserve-deposit ratio and monetary base remain unchanged.Calculate the money multiplier,the money supply,and the new values of CU,RES,and DEP.

Describe how the real interest rate changes in a Keynesian model if a shock shifts the IS curve down and to the right and the Fed changes its policy to keep output unchanged.

Banks hold some deposits on reserve at the Fed because