Questions and Answers of Financial System Of The Economy

Discuss each of the four major functions of the Fed. Which do you believe requires Fed autonomy? Why?
Why was the Fed created? What effect should the existence of the Fed have on financial crises?
Why did Congress create 12 Federal Reserve Banks rather than one central bank?
What features of the Fed’s structure serve to make it fairly autonomous? Is Congress able to wield any control over the Fed?
Why have the responsibilities of the Fed increased since its inception?
Discuss the major policy tools that the Fed can use to promote the overall health of the economy. What is the most widely used tool?
What are the primary and secondary credit rates? When do they change? How often does the Fed change the required reserve ratio? How often does the Fed engage in open market operations?
What are the arguments for increasing the autonomy of the Fed? What are the arguments for increasing the accountability of the Fed?
Suppose that the Fed were less in dependent. How could this affect monetary policy? Suppose that the Fed were more in dependent. How could this affect monetary policy?
Why is the president of the New York Fed a permanent member of the FOMC?
Is the Fed more accountable to Congress or to the president? Why? Who created the Fed? Who appoints the Fed chair?
How does each of the following affect the money supply?a. The Fed lowers the required reserve ratio. b. The Fed buys government securities.
What are sweep accounts? How do sweep accounts affect required reserves? Are balances in sweep accounts subject to reserve requirements?
Discuss or define briefly the following terms and concepts: means of payment, store of value, unit of account, barter, monetary aggregates, liquidity, nonfinancial debt, electronic funds transfer
What are the functions of money? Which function do you think is most important?
Suppose we define money as that which serves as a store of value. Explain why this is a poor definition.
How does the Fed calculate M1, M2, and DNFD? Are these aggregates all money? Why or why not? Which contains the most liquid assets? Which is smallest? Which is largest? Which monetary aggregate is
Why is the debt of financial institutions excluded from DNFD?
What is the payments mechanism? What changes are occurring in this mechanism? Why are they occurring? How do smart cards differ from storedvalue cards?
What is the opportunity cost of holding money?
Chris and Harold Yoshida are a young couple with a growing income. What will happen to their demand for money over time?
In what form can a depository institution hold reserves? Who determines the amount of funds available for reserves? How does the Fed influence the amount of reserves a depository institution must
In which monetary aggregate(s) is each of the following assets included? a. Small savings and time deposits ($100,000) b. Money market deposit accounts c. Currency in the hands of the public d.
Assume the market for money is originally in equilibrium. Explain what happens to demand, supply, quantity demanded, and/or quantity supplied, ceteris paribus, given each of the following events:a.
Some people have money; some people need money. Explain how the financial system links these people together.
Provide a short discussion or definition of the following terms: economics, finance, the financial system, net lenders, net borrowers, direct and indirect finance, financial markets, financial
Discuss the statement: “Since I have high credit card limits, I have lots of money.” Are credit cards money? Why or why not?
When are the surplus funds I have available to lend in financial markets equal to my saving?
Why do financial intermediaries exist? What services do they provide to the public? Are all financial institutions financial intermediaries?
What are transactions costs? Does financial intermediation increase or decrease transactions costs?
What is a depository institution? What is a checkable deposit? How does a depository institution differ from other intermediaries? Give three examples of depository institutions.
Why does the Fed monitor the economy? What actions can the Fed take to affect the overall health of the economy?
Why have views changed concerning the appropriate role of stabilization policies in managing the economy? Briefly discuss the historical evolution of these views.
What are the pros and cons of lending to my next door neighbor rather than putting my surplus funds in a bank?
Define laissez faire and fiscal policy. Who determines fiscal policy? Who determines monetary policy?
Rank the following assets in terms of their liquidity, from least to most liquid: cash, savings deposits, gold, a house, a rare oil painting, a checkable deposit. Explain your rank order.
Is each of the following an example of direct or indirect financing? a. John purchases stock from the biotech firm that employs him. b. Mary purchases a newly issued government security. c. John
Bill’s income is $4,000. He spends $3,000 on consumption and $300 on an investment in a newly constructed house. He acquires $700 in financial assets. What is his saving? What is the amount of
A firm spends $100,000 on investment in plant and equipment. It has available funds of $30,000 and borrows the additional funds from a bank. Is the fi rm a net borrower or a net lender? What is the
Diane Weil earns wages of $45,000 and interest and dividend income of $5,000. She spends $8,000 as a down payment on a newly constructed mountain cabin and lends $4,000 in financial markets. Assuming
Tech Corp had gross sales of $9 million and total expenses of $8.5 million. Assume that Tech wants to undertake a capital investment of $1 million. What is the minimum amount of bonds it would have
What are the phases of a business cycle? Draw a graph of a typical business cycle and label the various phases.

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