Economics: C16 The Federal Reserve & Monetary Policy
Terms
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- What is the Board of Governors?
- The seven member board that oversees the Federal Reserve System. Ben Bernake replaced Alan Greenspan as Chairman.
- What is Monetary Policy?
- The actions the Federal Reserve takes to influence the level of real GDP and the rate of inflation in the economy.
- What are Federal Reserve Districts?
- The twelve banking districts created by the Federal Reserve Act.
- What is the Federal Advisory Council (FAC)?
- The research arm of Federal Reserve which provides feedback & advice to the Board of Governors concerning the financial health of each district.
- What is the Federal Open Market Committee (FOMC)?
- A Federal Reserve committee that makes key decisions about interest rates and the growth of the U.S. money supply.
- What is Check Clearing?
- The process by which banks record whose account gives up money and whose account receives money when a customer writes a check.
- What is a Bank Holding Company?
- A company that owns more than one bank.
- What is the Federal Funds Rate?
- Interest rate that banks charge each other for loans.
- What is the Discount Rate?
- Rate the Federal Reserve charges for loans to commercial banks.
- What is Net Worth?
- Total assests minus total liabilities.
- What is Money Creation?
- The process by which money enters into circulation; not the mere printing of money.
- What is the Required Reserve Ration (RRR)?
- The ratio of reserves to deposits required of banks by the Federal Reserve.
- What is the Money Multiplier Formula?
- Amount of new money that will be created with each demand deposit, calculated as 1 divided by RRR.
- What are Excess Reserves?
- Reserves greater than the required amounts. (Est. to be betw. 2 & 3.
- What is the Prime Rate?
- Rate of interest banks charge on short term loans to their best customers.
- What are Open Market Operations?
- The buying and selling of government securities to alter the supply of money.
- What is Monetarism?
- the belief that the money supply is the most important factor in macroeconomic performance.
- What is Easy Money Policy?
- Monetary policy that increases the money supply. This lowers interest rates & encourages spending.
- What is Tight Money Policy?
- Monetary policy that reduces the money supply. This pushes interest rates upward causing investment spending to decline lowering Real GDP
- What is Inside Lag?
- Delay in implementing monetary policy. (up to 1 yr. to recognize problem)
- What is Outside Lag?
- The time it takes for monetary policy to have an effect.