mo nat comprises the money (stock) supply and their definitions. 4- Know when th
ID: 1127745 • Letter: M
Question
mo nat comprises the money (stock) supply and their definitions. 4- Know when the Federal Reserve System (FED) was created. The r one c uro -Know the -Know what currently backs the money supply of the Federal Reserve System. 7 -Know the functions of the Federal Reserve banks. -Be able to define quasi-public bank and bankers' banks. 9 -Know the main responsibility of the board of governors lo - Know the main responsibility of the FOMC. art w about bank balance sheets: definition, terms (required reserve, reserve ratio, total or act ss reserve) and how to make changes on the balance sheet, or in a wor problem. -Know how commercial banks use loans to increase or decrease the money supply. -know about how much money a single bank can loan out and the effect on the banking system - Know the effect of changes in the reserve ratio on excess reserves. 1Know about the transactions demand and the asset demand for money. - Know who sets the supply of money. -Know the monetary policy tools and know how they would be applied during a recession or d inflation. r-Be able to define tight money policy and easy money policy and describe their impact on inte and investment spending. Know the definitions and the impact of "federal fund rate", "discount rate", and 'prime rate" - Know the strengths of monetary policy compared to fiscal policy -Be able to define /describe: * Fiscal policy Discretionary Fiscal policy -know how to use discretionnu fExplanation / Answer
16. Federal bank of country sets the money supply. This is because the central bank is mandated to maintain money supply, manitain exchange rate and maintain price stability without affecting growth.
17.Monetary policy tools are
* Open market operations
* Repo rate and Reverse repo rate
* Federal funds rate
* Bank rate
During recession government can use it to lower interest rate , fall in interest rate will boost investment, increased investment will boost employment, output and income level in economy.
During inflation central bank can use contractionary monetary policy to control level of money in economy and thus level of aggregate demand in economy.
18. Tight monetary policy or contractionary monetary policy aims to decrease money supply in economy . Decreased in money supply will increase interest rate in economy . This is because a fall in money supply will force people to hold less bond and more money . Decrease in demand for bond will increase interest rate .
Light monetary policy or expansionary monetary policy aims to increase money supply in economy. Increased money supply will lower interest rate in economy. This is because increase money supply means people have more money than they need so they will demand for bond. Increased demand for bond will lower interest rate in economy.
19 Discount rate Discount rate means rate at which central bank will lend to other bank in country.
Discount rate is used to increase or decrease money supply in economy .
Federal funds rate - Rate at which the banks lend to their counterparts and other depositary institutions overnight without any colletral.
Federal funds rate is used to control money supply in economy.
Prime rate - Rate at which leading banks in economy will lend to its prime customers . These prime customers are large corporations, big bussiness house , regular customers etc.
This is used to increase or decrease money supply in economy.
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