Ample Reserves and Monetary Policy

Front

Assume the country is in a recession. Which Fed policy should be implemented?

Back

An expansionary monetary policy, lower interest on reserves.

Front

Which of the following policies would be most effective to reduce the price level in the short run?
Options:
Increasing the minimum wage,
Increasing government spending,
Increasing interest on reserves,
Decreasing the required reserve ratio,
Decrease income tax rates

Back

Increasing 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

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

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

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

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

In the Ample Reserves section of the graph the only effective monetary policy would be

Back

changing administered rates

Front

The shift in the graph could only be caused by: a Fed purchase of securities (bonds), raising administered rates, lowering the discount rate, lowering the Federal Funds Rate

Back

raising administered rates

Front

The action shown in the graph could only be caused by ____ administered rates and should be used when an economy is facing a(n)_____ gap in a period of ____ reserves.

Back

raising; inflation; ample