Exam 4: The U.S. Federal Reserve and the Creation of Money

The Fed provides ________ to banks and also requires banks to hold, as ________, a portion of the deposits that the public holds at the banks..

Suppose the Fed's required reserve ratio is 12%. Further suppose that the Fed buys $50 million of U.S. Treasury securities from a dealer who deposits the check, which is drawn on the Fed, with Bank A. Bank A's reserve account with the Fed has increased by $50 million and so have its (demand) deposits, its total reserves, and the overall level of M₁. How much has required reserves risen?

The most important agent in the money supply process is the ________.

The Fed has four major tools by which it influences, indirectly and to a greater or lesser extent, the amount of money in the economy and the general level of interest rates. These tools represent the key ways that the Fed interacts with commercial banks in the process of creating money. Name and describe three of these tools.

A bank borrowing from the Fed is said to use the ________, and these loans are backed by the bank's collateral. The rate of interest on these loans is the ________.

________ is defined as M₁ plus all dollars held in time and savings accounts at banks and thrift institutions, plus all dollars invested in retail money market mutual funds, plus some additional accounts such as overnight repurchase agreements.

In a reverse repo (also known as a matched sale or a matched sale-purchase transaction), the Fed sells securities and makes a commitment to buy them back at a higher price later.

In addition to the individual country central banks, there is the ________, which came into being on January 1, 1999, and is responsible for the implementing monetary policy for the member countries of the European Union.

Suppose the Fed's required reserve ratio (REQ) is 10%. Further suppose that the Fed buys $25 million of U.S. Treasury securities from a dealer who deposits the check, which is drawn on the Fed, in her bank increasing her bank's reserve account (∆R) with the Fed by $25 million as well as its demand deposits, its total reserves, and the overall level of M₁. The total demand deposits created (∆TDD) are $25 million.

Created in 1913, the ________ is the government agency responsible for the management of the U.S. monetary and banking systems.

The central bank of the United Kingdom, the Bank of England, describes its duties toward maintaining stability of the currency and money supply for a country or a group of countries through four measures. Name and describe two of these four measures.

The most basic monetary aggregate is the fiscal base.

________ is one in which foreign transactors - of either goods or financial assets-play a negligible role.

One of the major ways a central bank accomplishes its goals is through monetary policy. For this reason, a central bank is sometimes referred to as a ________.

Dramatic evidence of the growing importance of international policy coordination on monetary matters occurred in two meetings of central bankers of the large industrial nations in the mid 1980s.

Briefly discuss the nature of a closed economy and an open economy.

Although the G8 can concur on economic and financial policies and establish objectives, compliance is voluntary.

The ________ role of a central bank is to maintain the stability of the currency and money supply for a country or a group of countries.

Which of the following does the central bank of the United Kingdom identify as its role in maintaining financial stability?

The ratio of the money supply to the economy's income (as reflected by the gross national product or some similar measure) is known as the ________ in circulation.