ECON 2120 Finals Prep Questions & Answers
QUESTIONS & ANSWERS
monetary policy
the actions the federal reserve takes to manage interest rates to pursue macroeconomic policy
objectives
monetary policy goals
price stability, high employment, stability of financial markets and institutions, economic growth
Federal Funds Rate
Interest rate banks charge each other for loans
When the Fed wants to implement expansionary
monetary policy to increase aggregate demand, real GDP, and employment, it lowers its target
for the federal funds rate.
Overnight Reverse Repurchase Agreement (ON RRP)
A financial transaction in which the Fed borrows funds
overnight from a financial institution.
➢ Essentially, a firm lends to the Fed overnight and the
firm earns interest.
Floor Operating System
The current system under which the Fed uses the interest rate on banks' reserve balances and the
interest rate on overnight loans with financial firms to establish a floor under the federal funds
rate
, Quantitative Easing
The Fed policy that attempts to increase aggregate demand by buying long-term securities, such
as 10-year Treasury notes.
Forward Guidance
Statements by the Federal Open Market Committee about how it will conduct monetary policy in
the future
most important policy tools
Interest rate on reserve balances (IORB)
Interest rate on overnight reverse repurchase agreements (ON RRP)
tools when faced with a zero lower bound
Quantitative easing
Forward guidance
Traditional Monetary Policy Tools
Open market operations
Discount rate
Reserve requirements
Expansionary Monetary Policy
the Federal Reserve's policy of decreasing interest rates to increase real GDP
Contractionary Monetary Policy
the Federal Reserve's policy of increasing interest rates to reduce inflation
QUESTIONS & ANSWERS
monetary policy
the actions the federal reserve takes to manage interest rates to pursue macroeconomic policy
objectives
monetary policy goals
price stability, high employment, stability of financial markets and institutions, economic growth
Federal Funds Rate
Interest rate banks charge each other for loans
When the Fed wants to implement expansionary
monetary policy to increase aggregate demand, real GDP, and employment, it lowers its target
for the federal funds rate.
Overnight Reverse Repurchase Agreement (ON RRP)
A financial transaction in which the Fed borrows funds
overnight from a financial institution.
➢ Essentially, a firm lends to the Fed overnight and the
firm earns interest.
Floor Operating System
The current system under which the Fed uses the interest rate on banks' reserve balances and the
interest rate on overnight loans with financial firms to establish a floor under the federal funds
rate
, Quantitative Easing
The Fed policy that attempts to increase aggregate demand by buying long-term securities, such
as 10-year Treasury notes.
Forward Guidance
Statements by the Federal Open Market Committee about how it will conduct monetary policy in
the future
most important policy tools
Interest rate on reserve balances (IORB)
Interest rate on overnight reverse repurchase agreements (ON RRP)
tools when faced with a zero lower bound
Quantitative easing
Forward guidance
Traditional Monetary Policy Tools
Open market operations
Discount rate
Reserve requirements
Expansionary Monetary Policy
the Federal Reserve's policy of decreasing interest rates to increase real GDP
Contractionary Monetary Policy
the Federal Reserve's policy of increasing interest rates to reduce inflation
