The money multiplier is the amount by which a $1 change: ● in reserves will change the money supply. The Blank 1 requirement is the fraction of checkable deposits that banks must keep on hand as reserves either as currency or on deposit with the Federal Reserve. ● Reserve A market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances is called a(n) Blank 1 market ● Money The money multiplier is the amount by which a $1 change in Blank will change the money supply. ● Reserves What is the reserve requirement? ● The fraction of checkable deposits that a bank must keep as reserves, either as currency or on deposit with the Fed. Blank 1 reserves the amount the bank can lend out to earn interest equal Blank 2 reserves minus Blank 3 reserves. ● Excess, total, required Which of the following describes a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances? ● Money Market Blank 1 reserves are the fraction or portion of checkable deposits that a bank must keep on hand. ● Required The fraction of checkable deposits that banks must keep on hand as reserves either as currency or on deposit with the Federal Reserve is called the: ● Reserved requirement The discount rate is set by the Blank 1 ● Fed The money multiplier equals: ● the overall change in the money supply/the initial change in reserves. Blank 1 reserves are equal to total reserves minus required reserves. ● Excess Blank 1 reserves are equal to deposits times the reserve requirement. ● Required When banks borrow from the Fed, the interest rate they pay is set by the Fed, and it’s called the Blank 1 rate. ● Discount The federal funds market is the market for borrowing and lending reserves between Blank 1 ● Banks The discount rate is the interest Blank 1 rate at which banks can borrow money directly from the Federal Reserve. ● Interest The interest rate that banks pay in the formal market for overnight loans of federal reserves is called the: ● Federal funds rate The federal funds rate is the interest rate that banks pay when borrowing reserves from other Blank 1 ● Banks The reserve requirement is the Blank 1 percentage of deposits that banks must keep on hand as reserves. ● Lowest The money multiplier equals: ● 1/reserve requirement. How does selling bonds in the open market change the federal funds rate? ● Selling bonds decreases the supply of reserves, causing the federal funds rate to increase. The actions taken by a country's central bank to expand the money supply and lower interest rates is called Blank 1 monetary policy. ● Expansionary. A market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances is called a(n) Blank 1 market ● Money The actions taken by a country’s central bank to contract the money supply and raise interest rates is called Blank 1 monetary policy. ● Contractionary Suppose the current federal funds rate is 4%, and Fed wants to decrease the rate to 2%. How will the Fed decrease the Federal Funds rate? ● Buying bonds in the open market. A money market is: ● a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances. The actions taken by a country’s central bank to contract the money supply and raise interest rates is called: ● tight money. ● contractionary monetary policy. When aggregate demand falls, to avoid a(n) Blank 1 and return to the long-run equilibrium, we must increase aggregate demand. ● Recession When aggregate demand falls, to increase aggregate demand, we can use Blank 1 monetary policy. ● Expansionary Actions taken by a country’s central bank to expand the money supply and lower interest rates with the objective of increasing real GDP and reducing unemployment is Blank 1 monetary policy. ● Expansionary An increase in aggregate demand will cause the price level to (increase/decrease) and unemployment to (fall/rise) in the short run. ● Increase ● Fall When aggregate demand rises, to avoid Blank 1 and return to the long-run equilibrium, we must decrease aggregate demand. ● Inflation When aggregate demand rises, to decrease aggregate demand, we can use Blank 1 monetary policy. ● Contractionary Blank 1 monetary policy is sometimes referred to as “easy money.” ● Expansionary Suppose the Federal Reserve is planning to conduct expansionary monetary policy during a recession. Which of the following is a tool they may consider using? ● Reducing the interest rate paid on excess reserves How is a change in the money supply calculated when there is a change in excess reserves? ● The change in the money supply equals a negative money multiplier (−1/rr) multiplied by the change in excess reserves. Which of the following refers to the implementation lag? ● The time between when a policy is enacted and when it has its full effect on the economy. A situation where increasing the money supply does not lower interest rates due to a flattening of the money demand curve refers to: ● A liquidity trap Which of the following is a monetary policy tool used by the Federal Reserve? ● Paying interest on excess reserves If an economy experiences a change in excess reserves, the change in money supply will also depend on ● the money multiplier.