ECO202 Final Exam – Questions & Accurate Solutions
The fed is said to have a "dual mandate" because Right Ans - maintaining
price stability and high employment are the two most important goals of the
Fed that are explicitly mentioned in the employment act of 1946
Investment banks can be subject to liquidity problems because Right Ans -
they often borrow short term, sometimes as short as overnight and invest the
funds in longer term investments
What is banking panic? Right Ans - a situation in which many banks
experience runs at the same time
How does the federal reserve act to help prevent banking panics? Right
Ans - The fed acts as a lender of last resort, making loans to banks so they can
pay off depositors.
maximum sustainable unemployment means the economy is producing at its
potential where Right Ans - unemployment includes frictional and
structural unemployment
"price stability" means Right Ans - a low and stable inflation rate
If it did not increase its target for the federal funds rate, the policy goal the
Fed would be promoting is Right Ans - economic growth, because
maintaining lower interest rates would stimulate the economy and raise the
price level
How can the federal reserve achieve price stability? Right Ans - the rate of
inflation should be low such as 1%-3% and consistent.
What do economists mean by the demand for money? Right Ans - it is the
amount of money-currency and checking account deposits- that individuals
hold
Advantage of holding money? Right Ans - money can be used to buy goods,
services, and financial assets
The fed is said to have a "dual mandate" because Right Ans - maintaining
price stability and high employment are the two most important goals of the
Fed that are explicitly mentioned in the employment act of 1946
Investment banks can be subject to liquidity problems because Right Ans -
they often borrow short term, sometimes as short as overnight and invest the
funds in longer term investments
What is banking panic? Right Ans - a situation in which many banks
experience runs at the same time
How does the federal reserve act to help prevent banking panics? Right
Ans - The fed acts as a lender of last resort, making loans to banks so they can
pay off depositors.
maximum sustainable unemployment means the economy is producing at its
potential where Right Ans - unemployment includes frictional and
structural unemployment
"price stability" means Right Ans - a low and stable inflation rate
If it did not increase its target for the federal funds rate, the policy goal the
Fed would be promoting is Right Ans - economic growth, because
maintaining lower interest rates would stimulate the economy and raise the
price level
How can the federal reserve achieve price stability? Right Ans - the rate of
inflation should be low such as 1%-3% and consistent.
What do economists mean by the demand for money? Right Ans - it is the
amount of money-currency and checking account deposits- that individuals
hold
Advantage of holding money? Right Ans - money can be used to buy goods,
services, and financial assets
