LSU Econ 2035 Test 3 Questions And
All Correct Answers.
Ch.11: Instrument Independence - Answer The ability of the Central Bank to set monetary
policy instruments
Goal Independence - Answer The ability of the central bank to set the goals of monetary
policy
The monetary policy report to the congress - Answer explains how the conduct of monetary
policy is consistent with the objectives outlined by the Federal Reserve Act
Political Business Cycle - Answer Just before an election, expansionary policies are pursued
to lower unemployment and interest rates and after the election, the bad affects go away until
the next election
Theory of Bureaucratic Behavior - Answer The objective of the bureaucracy is to maximize
personal welfare.
States that it will have its own set of goals that feed its utility function.
Responsabilies of the Federal Reserve - Answer Clear checks, issue new currency and
withdraw damaged currency, administer and make discount loans to the banks, evaluate
opposed mergers and applications for banks to expand their activities, act as liasons between
the business community and the federal reserve system, examine bank holding companies and
state chartered member banks, collect data on local business conditions, use their staff of
professional economists to research topics related to monetary policy
Central Bank Independence - Answer Macro economic performance will be improved by
making the central bank more independent.
It allows central banks to pursue their target without being leaned on by a senator on
reelection.
ECB vs. FRB - Answer ECB has an executive board with a president, vice president, and 4
other members.
Budgets of the FRB are controlled by the board of governors. National central banks control the
budget of the ECB.
FRB has centralized monetary operations, whereas the ECB does not.
Bank of Canada - Answer Ultimate repsonsibility of monetary policy is given to the
government. So on paper the bank of Canada is not as independent as FRB
, Bank of England - Answer Second oldest central bank.
The government can overrule the bank and sets rates in extreme economic circumstances.
Bank of Japan - Answer Monetary policy is determined by the banks policy board.
Ch. 12 Monetary Liabilities - Answer the 2 liabilities on the fed's balance sheet are often
referred to as
Currency in circulation - Answer the fed issues currency
the amount of currency in the hands of the public
Reserves - Answer Consists of deposits of the fed plus currency that is physically held by
banks.
Assets for the banks, but liabilities for the fed
Required Reserve - Answer reserves that the fed requires the banks to hold
Excess Reserves - Answer any additional reserves the bank chooses to hold
Monetary Base - Answer MB = Currency in circulation + Reserves
Open Market Operations - Answer Federal reserve excercises control over the monetary
base through its purchases or sales of securities in the open market.
The primary way in which the Fed causes changes in monetary base
Deposit Creation - Answer Deposit creation will stop only when excess reserves in the
banking system are 0.
Banking system will be at equilibrium when the total amount of required reserves equal the
total amount of excess reserves.
Depositors decessions on how much currency to hold and the banks decession regarding excess
reserves to hold will cause a money supply to change
Decisions by depositors to increase their holdings of currency or by banks to hold excess
reserves, will decrease expansions of deposits
Monetary supply is _____ related to non-borrowing monetary base so they both increase -
Answer positively
All Correct Answers.
Ch.11: Instrument Independence - Answer The ability of the Central Bank to set monetary
policy instruments
Goal Independence - Answer The ability of the central bank to set the goals of monetary
policy
The monetary policy report to the congress - Answer explains how the conduct of monetary
policy is consistent with the objectives outlined by the Federal Reserve Act
Political Business Cycle - Answer Just before an election, expansionary policies are pursued
to lower unemployment and interest rates and after the election, the bad affects go away until
the next election
Theory of Bureaucratic Behavior - Answer The objective of the bureaucracy is to maximize
personal welfare.
States that it will have its own set of goals that feed its utility function.
Responsabilies of the Federal Reserve - Answer Clear checks, issue new currency and
withdraw damaged currency, administer and make discount loans to the banks, evaluate
opposed mergers and applications for banks to expand their activities, act as liasons between
the business community and the federal reserve system, examine bank holding companies and
state chartered member banks, collect data on local business conditions, use their staff of
professional economists to research topics related to monetary policy
Central Bank Independence - Answer Macro economic performance will be improved by
making the central bank more independent.
It allows central banks to pursue their target without being leaned on by a senator on
reelection.
ECB vs. FRB - Answer ECB has an executive board with a president, vice president, and 4
other members.
Budgets of the FRB are controlled by the board of governors. National central banks control the
budget of the ECB.
FRB has centralized monetary operations, whereas the ECB does not.
Bank of Canada - Answer Ultimate repsonsibility of monetary policy is given to the
government. So on paper the bank of Canada is not as independent as FRB
, Bank of England - Answer Second oldest central bank.
The government can overrule the bank and sets rates in extreme economic circumstances.
Bank of Japan - Answer Monetary policy is determined by the banks policy board.
Ch. 12 Monetary Liabilities - Answer the 2 liabilities on the fed's balance sheet are often
referred to as
Currency in circulation - Answer the fed issues currency
the amount of currency in the hands of the public
Reserves - Answer Consists of deposits of the fed plus currency that is physically held by
banks.
Assets for the banks, but liabilities for the fed
Required Reserve - Answer reserves that the fed requires the banks to hold
Excess Reserves - Answer any additional reserves the bank chooses to hold
Monetary Base - Answer MB = Currency in circulation + Reserves
Open Market Operations - Answer Federal reserve excercises control over the monetary
base through its purchases or sales of securities in the open market.
The primary way in which the Fed causes changes in monetary base
Deposit Creation - Answer Deposit creation will stop only when excess reserves in the
banking system are 0.
Banking system will be at equilibrium when the total amount of required reserves equal the
total amount of excess reserves.
Depositors decessions on how much currency to hold and the banks decession regarding excess
reserves to hold will cause a money supply to change
Decisions by depositors to increase their holdings of currency or by banks to hold excess
reserves, will decrease expansions of deposits
Monetary supply is _____ related to non-borrowing monetary base so they both increase -
Answer positively
