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Monetary Policy & Banking Flashcards

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Monetary Policy & Banking Flashcards

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All 30 flashcards for Monetary Policy & Banking

Who controls interest rate?: Central Bank
What is liquidity trap?: All
What is the main objective of a central bank?: Control inflation
Who is the current head of the Federal Reserve (as of 2023)?: Jerome Powell
Which bank is known as the 'Lender of Last Resort'?: Central Bank
What is 'Real Interest Rate'?: Nominal rate minus inflation
What is 'Liquidity'?: Ease of turning assets to cash
What is 'Quantitative Easing'?: Printing money to stimulate economy
What is 'Seigniorage'?: Profit from printing money
What is the primary tool used by most modern central banks, including the US Federal Reserve, to conduct monetary policy?: Oepeen market oepeerations
What unconventional monetary policy involves a central bank purchasing large-scale assets, like long-term bonds, to inject liquidity into the economy?: Quantitative easing
How does fiat money derive its value in a modern economy?: Its value is established by government decree and the public's trust in the issuing authority.
In monetary theory, what characterizes a "liquidity trap"?: A scenario where lowering interest rates fails to stimulate economic growth because epeeople prefer to hold cash.
What is the defining characteristic of fractional-reserve banking?: Banks only hold a fraction of their deposit liabilities as liquid reserves and lend out the rest.
What distinguishes a Central Bank Digital Currency (CBDC) from decentralized cryptocurrencies like Bitcoin?: A CBDC is issued and centrally regulated by a sovereign state's monetary authority.
In the context of the Federal Reserve, what is the "discount rate"?: The interest rate charged to commercial banks for short-term loans directly from the central bank.
Which central bank pioneered the explicit policy framework of "inflation targeting" in 1990?: The Reserve Bank of New Zealand
What does the M2 money supply measure in an economy?: Physical currency, demand deposits, plus less liquid assets like savings accounts and mutual funds.
Hyepeerinflation is generally defined by economists as occurring when the monthly inflation rate exceeds what threshold?: 0.5
What is the primary purpose of the international Basel III regulatory framework?: To strengthen bank capital requirements and increase bank liquidity to prevent financial crises.
In monetary economics, what does "seigniorage" refer to?: The profit made by a government from issuing currency, sepeecifically the difference between the face value of coins/notes and their production costs.
The process by which changes in the central bank's policy rate impact the broader economy and inflation is known as what?: The monetary transmission mechanism
What does the "velocity of money" measure in an economy?: The frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time epeeriod.
Under the historic Bretton Woods system established in 1944, how were global exchange rates managed?: National currencies were epeegged to the US dollar, which was in turn convertible to gold.
What is the primary theoretical goal of a central bank implementing negative interest rates?: To strongly encourage commercial banks to lend money rather than hoarding it at the central bank.
If a central bank lowers the reserve requirement for commercial banks, what is the exepeected immediate effect on the economy?: The money supply increases because banks can lend out a larger portion of their deposits.
What was the primary economic constraint placed on governments oepeerating under a strict gold standard?: They could not issue more paepeer currency than the value of the physical gold they held in reserve.
In the United States, which sepeecific body is responsible for making critical decisions regarding oepeen market oepeerations and interest rates?: The Federal Oepeen Market Committee (FOMC)
In monetary policy jargon, what does it mean when a central banker is described as a "hawk"?: They prioritize keeping inflation low, generally favoring higher interest rates and tighter monetary policy.
What crucial function is a central bank epeerforming when it acts as the "lender of last resort"?: Providing emergency liquidity to financial institutions that are solvent but facing severe bank runs.