Ample Reserves "Test"

Front

Legally, how much do banks have to hold in reserve in their vaults?

Back

0

Answer explanation

This became true on March 26, 2020

Front

Why do banks now lend out a smaller percentage of their excess reserves?

Back

Banks are now more conservative in their lending practices after the 2008 Financial Crisis.

Front

Why is the banking system considered an "Ample Reserves" type system today?

Back

The FED pays banks interest on reserves(IOR)

Front

What is the policy rate on the Reserve Market Graph?

Back

Same as the Federal Funds Rate that banks charge each other

Front

Why is there a downward sloping demand curve for reserves?

Back

Inverse relationship between the federal funds rate and the quantity of reserves demanded

Front

What does the flat line at the beginning of the reserve market graph represent?

Back

The Discount Rate a bank is charged when borrowing from the Fed

Front

Which is true if the IOR(Interest on reserves) is 2%? Options: Banks would rather just borrow at the 5% Discount Rate, The Federal Funds rate only exists in a limited reserve system, A bank shouldn't use a 1% Federal Funds Rate to loan to another bank, The Federal Funds Rate automatically goes to 2%, Show me the money!

Back

A bank shouldn't use a 1% Federal Funds Rate to loan to another bank

Front

What is the main difference between limited and ample reserve systems?

Back

Banks are incentivized to keep more reserves due to the IOR paid by the Fed in the Ample Reserve system.

Front

Which monetary policy tool does the Fed use today to influence interest rates in the Ample Reserves System? Options: Buying Bonds, Federal Funds Rate, Reserve Requirement, Open Market Operations, Interest on Reserves

Back

Interest on Reserves

Front

Country H's current domestic output is lower than its potential domestic output. Assume that the central bank now decreases its interest rates. What will be the short-run effects of the central bank's action on cyclical unemployment and real income?

Back

Cyclical Unemployment will decrease and real income will increase