Exam 12: Exploring Central Banks and Their Impact on the Economy and Financial System

A member of the Board of Governors of the Federal Reserve System who completes a full term cannot be reappointed to the Board.

Research reveals that central banks cannot significantly influence an economy's output and employment in the long run.

The Bank of Italy is considered one of the most independent central banks in the world.

Central banks can exercise influence on conditions in the economy and financial system via the following channel(s) of monetary policy:

Prestige is an intangible benefit of membership in the Federal Reserve System.

Banks will sometimes maintain a protective "cushion" of excess reserves to meet unexpected withdrawals without falling below their required reserve holdings.

During most of the 1990s, the Japanese economy experienced:

The primary goal of the proposed new European Central bank will be full employment of resources.

The central bank whose policies are determined by a Central Bank Council, representing various regions of the nation whose terms of office last up to 8 years is known as the:

The national economic goal of reasonable stability in the general price level for all goods and services tends to conflict, according to your text, with the goal of:

Central banking in the United States and in a majority of nations in the West operates principally by executive order and regulation, not through market forces.

Using the the description or the definition below, identify each of the terms and concepts from this chapter. a. An agency of government that controls money and credit growth and monitors the condition of the financial system. b. The central bank of the United States. c. Chief policy-making and administrative body within the Federal Reserve System. d. Chief group within the Federal Reserve System for setting money and credit policy. e. One of 12 regional financial institutions chartered by the U.S. Congress.

If the reserve requirement applicable to the deposits held by all depository institutions in the financial system is reduced from 10 percent to 5 percent, how does the transactions deposit multiplier change? Would there be a shift in the maximum volume of new deposits and loans that could be generated inside the banking system? How do you know?

Monetary foundation is the sum of legal reserves plus the amount of currency and coin held by the public.

The financial system includes:

The Federal Reserve directly answers to Congress.

One of the channels through which central banks influence the economy is in affecting the relative price of domestic and foreign currencies.

Control of the nation's money supply is important because money is so scarce, making it extremely valuable and sought after.

The measure of the money supply, M2 is an important factor in determining the rate at which the nominal GDP grows.

Leakages of funds from the banking system greatly reduce the size of the deposit multiplier. Among the most important leakages are: