Worksheet for Monetary Policy
#1. The Federal Reserve Board of Governors is composed of _____ governors appointed by the President and confirmed by the ______to ______year terms.
#2. The ______of the US can choose which of the governors is to serve as Chairman of the Federal Reserve Board of Governors, but his or her choice must be confirmed by the ______.
#3. In 2010 the Chairman of the Federal Reserve Board of Governors is ______.
#4. The Chairman of the Board of Governors before Bernanke was ______.
#5. Altogether, there are ______regional Fed banks.
#6. Open market operations are carried out by the ______Fed regional Bank.
#7. Monetary policy in the US is decided by the FOMC, ______composed of the ______governors of the Fed Board of Governors and ______presidents of regional Fed Banks.
#8. The ______of the NY Fed is always a member of the FOMC.
#9. The FAC, or Federal Reserve Advisory Council is composed of ______members; one appointed by each regional Fed Bank.
#10. The four duties of the Federal Reserve in the US is to (i) conduct monetary policy to ensure______employment, ______prices, and ______long term interest rates; (ii) supervise and ______banks; (iii) maintain financial ______; (iv) provide specialized financial ______.
#11. The Federal Reserve began in which year ______under President ______?
#12. There are ______branch banks under the 12 regional Fed Banks.
#13. San Francisco has four branch banks in its region: Los Angeles, Salt Lake City, Seattle, and ______.
#14. Each regional Fed bank has _____directors; 3 from class A, class B, and class C. Class A represents the banking community and are selected by the member banks of that region. Class B represents the ______and are selected by the ______of that region. Class C represent the public and are selected by the Board of Governors of the Fed.
#15. The Fed's Beige Book is published ______weeks before each meeting of the FOMC and provides the public with data and analysis from the Fed Banks.
#16. The Fed gets income from ______bonds and securities which it has bought in open market operations. These profits are returned to the ______of the US.
#17. The FOMC meets about ______times each year in Washington, D.C. to formulate monetary policy.
#18. There are three types of banks in the US: (i) Federally chartered ______banks which must be members of the Fed, and state chartered ______banks which can be (i) members of the Fed, or (iii) non-members of the Fed.
#19. In the short run, the Fed sometimes faces a dilemma of deciding between lower ______and ______unemployment.
#20. In the long run, the Fed has stated that lower inflation and ______price stability is associated with ______real economic growth and greater employment.
#21. The Federal Reserve affects the Federal Funds rate of interest by affecting the level of bank ______held on deposit at the Fed.
#22. The general short term interest rate in the economy is greatly affected by the fed ______rate.
#23. The fed funds rate is the rate of interest charged banks on ______term loans made to each other.
#24. Changes in short term interest rates affect ______term interest rates which in turn affect both consumption and ______plans.
#25. Changes in short term rates can have a significant effect on the foreign ______rate and thus ______and capital flows.
#26. One important problem of monetary policy is the issue of ______, where changes in the fed funds rate may affect the economy only after a period of time has elapsed.
#27. It is also not always clear how much changes in the fed funds rate will affect the ______term rate of interest and how much this in turn will affect ______demand.
#28. The Fed affects the level of loanable bank reserves by three tools: open market operations, changes in the Fed discount rate, and change in the required reserve ratio.
#29. An open market purchase means that the ______purchases US government securities from ______. This will increase the money supply.
#30. An open market sale will ______the level of bank reserves in the economy.
#31. Reducing the required reserve ratio will ultimately ______the money supply in the economy.
#32. The money supply is defined as Ms = C + D where C = ______and D = bank ______.
#33. All commercial banks keep deposits with the Fed. These deposits are called ______and are represented by R.
#34. The definition of high powered money, or the monetary base is H = C + ______.
#35. The Federal Reserve tends to favor the use of a very narrow range of indicators in deciding monetary policy; usually only the quantity of money and the foreign exchange rate. True or False?
#36. The Fed has growing holdings of Treasury securities mainly because secular increases in the demand for currency reduce bank reserves and this is offset by the Fed ______Treasuries.
#37. An increase in the money supply can be expected to ______rate of interest.
#38. An increase in the money supply can be expected to ______the price of bonds.
#39. An increase in the money supply will ______the real wage.
#40. Increasing the money supply will ______private consumption and investment.
#41. A rise in the currency/deposit ratio will lower the money supply. True or False?
#42. A rise in the reserve/deposit ratio will lower the money supply. True or False?
#43. An exogenous increase in velocity will lead to a higher price level. True or False?
#44. An exogenous increase in velocity will lead to a lower level of real GDP. True or False.
#45. ______was famous for advocating a strict "constant growth rate of money" rule for monetary policy.
$46. If one does not fix a rule for monetary policy, then one is advocating a ______policy.
#47. Milton Friedman did not believe that the Fed could target interest rates because it would cause either ______(interest rate too low) or ______(interest rate too high).
#48. During the early 1980's the Chairman of the Fed ______implemented a fixed and low growth of money policy which quickly reduced inflation to single digits.
#49. During the early 1980's the Chairman of the Fed Paul Volcker implemented a fixed and low growth of money policy which resulted in a ______with double digit unemployment.
#50. Monetizing the debt occurs when the Fed buys large amount of ______from commercial banks and creates new bank reserves to pay for it.
#51. The recent global financial crisis began in ______with the peaking of the national housing market.
#52. Many of the home mortgage loans in the US had been pooled and sold as ______(MBS).
#53. Government sponsored enterprises (GSEs) such as Freddie Mac and ______had bought the mortgage pools and had issued pass-through securities called MBSs to investors based on this pool of loans.
#54. These pass-through securities had become the foundation for more exotic types of derivatives such as ______(CDOs) and ______(CDSs).
#55. Large ______banks (not real banks) like Bear Stearns, Lehman Bros. Morgan Stanley, JP Morgan, Goldman Sachs, and Merrill Lynch ______money and bought these assets, both directly and indirectly through affiliated funds.
#56. A house that is "under water" means that the value of the house is ______than the mortgage loan owed by the owner.
#57. ______interest rates in 2004-2006 acted to stop the US housing bubble.
#58. During 2008 the housing crisis spread to the ______paper market.
#59. One reason for the financial crisis was that non-bank financial institutions originated large amounts of debt but were not subject to strict supervision and ______.
#60. Between 1997 and 2006, the price of a typical American house ______by 124%.
#61. From 2000 to 2003 the fed funds rate fell from 6.5% to ______%.
#62. One important reason why that the US housing market was able to flourish as a bubble during the late 1990s and early 2000s was the global savings ______.
#63. The sub-prime mortgage market refers to housing loans made to individuals with ______credit ratings.
#64. During the Clinton Administration, pressure was applied to Fannie Mae and Freddie Mac to extend MBSs to the ______market.
#65. The CRA refers to the ______Reinvestment Act.
#66. In 2008, CRA lending at Bank of America was only 7%, but constituted 29% of BOAs losses on ______lending.
#67. The term GSE refers to government sponsored ______.
#68. Fannie Mae and ______are examples of GSEs.
#69. The commodity bubble in gold, oil, copper, etc. was due in part to the ______of funds from the collapsing housing market to the commodity markets.
#70. The most critical stage of the crisis was during September, ______.
#71. The TARP program was designed in September, 2008 by ______Secretary Henry Paulsen and Fed Chairman Ben Bernanke.
#72. TARP stands for ______Asset ______Program.
#73. Toxic ______refers to assets on a financial institution's balance sheet which no longer are of much value.
#74. During 2008 and 2009, the ______paper market in the US froze up and there was little lending. The Fed stepped in an purchased commercial paper in order to add liquidity to the system.
#75. The Fed purchase of commercial paper was ______and the program has now been terminated.
#76. The collapse of the stock market in 2009 and personal real ______led to a negative real wealth effect on consumption. This contributed to the huge ______in the US economy, driving unemployment to double digits.
What was the Fed's response to the financial crisis that began in the summer of 2007?
Read the following two page discussion
http://www.federalreserve.gov/monetarypolicy/bst_crisisresponse.htm