ECON 111 FINAL EXAM QUESTIONS
AND ANSWERS
What is another tool the FED uses to help give banks more reserves? - Answer-
Changes in the discount rate
The interest rate the FED charges banks for temporary loans to meet reserve
requirements
FED sets this rate - Answer-Discount Rate
What was the discount rate through Dec 2015? - Answer-.75
During the financial crisis of 2008 what did the FED do to the discount rate? - Answer-
Opened the discount window to other institutions as well
Fed initiates a sale of government securities
Bonds to commercial backs
-banks gain bonds and give up reserves in exchange
Less Reserves --> Less Money --> Higher targeted federal funds rate
Also a higher discount rate - Answer-Restrictive Open Market Operations
At the December 2015 FOMC meeting what did the FED take steps to do? - Answer-
Normalize the federal funds rate
-FEDs funds target increased from .25 to .50
-remember the higher the rate the more the punch bowl is trying to be taken away
Also increased the discount rate from .75 to 1
-rates still very low and accommodating
What happened at the last FOMC meeting in Nov 2017? - Answer-FED funds target
1.25 and discount rate 1.75
How is the fiscal policy used? - Answer-Recession/Slow Growth (traditional)
GDP= C+I+G+(X-M)
Increase G
Decrease T
-or both in these directions
What will happen to the budget? - Answer-Increase deficit- deficit spending
Traditional fiscal policy
, Decrease G
Increase T
- or both in these directions - Answer-Inflation/Rapid GDP Growth
What will happen to the budget? (Inflation/Rapid GDP Growth) - Answer-Budget surplus
What is the movie title? - Answer-"The Power of Money"
What is the FEDs most important job? - Answer-Control Inflation
What is the cause of inflation? - Answer-Too much money because people have more
money to pay with
"Too much money chasing the same amount of goods"
In 1979 the inflation increased to what? - Answer-13%
What do people do during an inflation? - Answer-People spend money faster (before
prices get even higher) and save less
The FOMC consists of what members? - Answer-All 7 Board of Governors
Plus the Presidents of the districts
Paper money and coins makeup less than __ of money in circulation - Answer-1/3
In 1980 the inflation rate hit what number? - Answer-21.5%
What are the 3 Macroeconomic Goals? - Answer-1. Economic Growth
2. Price Stability
3. Full Employment
Long run trend or "Potential GDP" associated (3%)
Remember-more stuff per person means a higher standard of living
GDP= another name for aggregated supply
C+G+I+(Xg-M)= another name for aggregated demand - Answer-Economic Growth
Why the continued growth of the economy? - Answer-US is very (x10) good at
producing stuff and has continued to get even better
Why are we so good at producing stuff? - Answer-We have high worker productivity
What are the Determinants of Worker Productivity? - Answer-1. Educated, healthy,
skilled workers, and parents--HUMAN CAPITAL
2. Quality capital and technology
3. Incentives provided by a market economy
AND ANSWERS
What is another tool the FED uses to help give banks more reserves? - Answer-
Changes in the discount rate
The interest rate the FED charges banks for temporary loans to meet reserve
requirements
FED sets this rate - Answer-Discount Rate
What was the discount rate through Dec 2015? - Answer-.75
During the financial crisis of 2008 what did the FED do to the discount rate? - Answer-
Opened the discount window to other institutions as well
Fed initiates a sale of government securities
Bonds to commercial backs
-banks gain bonds and give up reserves in exchange
Less Reserves --> Less Money --> Higher targeted federal funds rate
Also a higher discount rate - Answer-Restrictive Open Market Operations
At the December 2015 FOMC meeting what did the FED take steps to do? - Answer-
Normalize the federal funds rate
-FEDs funds target increased from .25 to .50
-remember the higher the rate the more the punch bowl is trying to be taken away
Also increased the discount rate from .75 to 1
-rates still very low and accommodating
What happened at the last FOMC meeting in Nov 2017? - Answer-FED funds target
1.25 and discount rate 1.75
How is the fiscal policy used? - Answer-Recession/Slow Growth (traditional)
GDP= C+I+G+(X-M)
Increase G
Decrease T
-or both in these directions
What will happen to the budget? - Answer-Increase deficit- deficit spending
Traditional fiscal policy
, Decrease G
Increase T
- or both in these directions - Answer-Inflation/Rapid GDP Growth
What will happen to the budget? (Inflation/Rapid GDP Growth) - Answer-Budget surplus
What is the movie title? - Answer-"The Power of Money"
What is the FEDs most important job? - Answer-Control Inflation
What is the cause of inflation? - Answer-Too much money because people have more
money to pay with
"Too much money chasing the same amount of goods"
In 1979 the inflation increased to what? - Answer-13%
What do people do during an inflation? - Answer-People spend money faster (before
prices get even higher) and save less
The FOMC consists of what members? - Answer-All 7 Board of Governors
Plus the Presidents of the districts
Paper money and coins makeup less than __ of money in circulation - Answer-1/3
In 1980 the inflation rate hit what number? - Answer-21.5%
What are the 3 Macroeconomic Goals? - Answer-1. Economic Growth
2. Price Stability
3. Full Employment
Long run trend or "Potential GDP" associated (3%)
Remember-more stuff per person means a higher standard of living
GDP= another name for aggregated supply
C+G+I+(Xg-M)= another name for aggregated demand - Answer-Economic Growth
Why the continued growth of the economy? - Answer-US is very (x10) good at
producing stuff and has continued to get even better
Why are we so good at producing stuff? - Answer-We have high worker productivity
What are the Determinants of Worker Productivity? - Answer-1. Educated, healthy,
skilled workers, and parents--HUMAN CAPITAL
2. Quality capital and technology
3. Incentives provided by a market economy
