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Money and Banking
MB- Test 2- Ch.13
28
Business
Undergraduate 4
11/09/2010

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Cards

Term
This is the most important goal of monetary policy and bankers define this as low and stable inflation
Definition
Price stability
Term
This ties down the price level to achieve price stability
Definition
Nominal anchor
Term
Five goals are mentioned by central bank officials when they discuss the objectives of monetary policy:
Definition
1. High employment
2. Economic growth
3. Stability of financial markets
4. Interest-rate stability
5. Stability in foreign exchange markets
Term
High employment is a worthy goal for two main reasons:
Definition
1. The alternative situation- high unemployment- causes much human misery
2. When unemployment is high, the economy has both idle workers and idle resources, resulting in a loss of output
Term
Searches by workers and firms to find suitable matchups
Definition
Frictional unemployment
Term
A mismatch between hob requirements and the skills or availability of local workers
Definition
Structural unemployment
Term
This is when the demand and supply for employment are consistent
Definition
The natural rate of unemployment
Term
The goal of price stability comes first and then the other goals are able to be achieved is called?
Definition
Hierarchical mandates
Term
An economy operating to achieve two co-equal objectives: price stability and maximum employment
Definition
Dual mandate
Term
At this point, we have to realize that ________ __________ will only be beneficial for banks in the long run
Definition
Price stability
Term
T/F: Each of the 12 Federal Reserve districts has one main Federal Reserve bank, which may have branches in other cities in the district
Definition
True
Term
What are the three largest Federal Reserve banks in terms of assets:
Definition
New York, Chicago, San Fransisco
Term
How many Federal reserve districts are there?
Definition
12
Term
The 12 district banks are also involved in monetary policy in four ways:
Definition
1. They implement the discount rate that is determined by the Board of Governors
2. They decide which banks can get discount loans
3. Each Fed bank selects one commercial banker to serve on the Federal Advisory Council
4. Five Fed bank presidents each have a vote on the FOMC, which directs open market operations
Term
These are commercial banks chartered by the Office of the Comptroller- these banks are required to be members of the Fed
Definition
National banks
Term
Who is the body that controls the Fed, and where are they located, and how many members do they have?
Definition
Board of Governors
Washington, D.C.
Seven
Term
Who sets the reserve requirements?
Definition
The Board of Governors
Term
What does FOMC stand for?
Definition
Federal Open Market Committee
Term
How many times does the FOMC meet a year?
Definition
About eight
Term
Who essentially runs the Fed?- He is the spokesperson for them and negotiates with Congress and the Pres
Definition
Chariman
Term
There are two different types of independence of central banks:
Definition
Instrument independence
Goal independence
Term
The ability of the central bank to set monetary policy instruments
Definition
Instrument independence
Term
The ability of the central bank to set the goals of monetary policy
Definition
Goal independence
Term
What foreign bank is one of the oldest?
Definition
The Bank of England- 1694
Term
The objective of a bureaucracy (The Fed) is to maximize its own welfare
Definition
The theory of bureaucratic behavior
Term
Is the Fed independent?
Definition
YES
Term
Does the Fed avoid the political business cycle?
Definition
Yes
Term
Why was the Federal Reserve created?
Definition
Created in 1913 to lessen the frequency of bank panics
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