Economic Factors & Business Information Flashcards

Chapter 4 Core Concepts

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1
Q

What is monetary policy?

A

Policy decisions that control money supply levels that are executed by Federal Reserve Board

Loosening policies (typically pursued in recessions)
- Encourage economic growth
- More currency placed in the economy

Goal: drive interest rates down

Tightening policies (typically pursued in periods of high inflation)
- Manages inflation levels
- Less currency in the economy

Goal: drive interest rates up

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2
Q

What are the goals of monetary policy and ‘The Fed’?

A

They have two mail goals:

  • Economic growth (low unemployment)
  • Manageable inflation levels
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2
Q

What is the Monetarist Theory?

A

This theory states that the Fed’s actions are the most significant economic influence.

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3
Q

What is the Prime Rate?

A

The prime rate represents the interest rate banks charge when lending to their best customers, typically corporations and institutions.

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3
Q

What is the Federal Funds rate?

A

The average rate banks charge when lending to other banks

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4
Q

What is the Discount Rate?

A

This is the rate the Federal Reserve charges to lend money to the banks within its network

NOTE: The Discount Rate is slightly HIGHER than the Federal Funds rate

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5
Q

What is the Broker Loan rate?

A

The Broker Loan rate is also sometimes called the Money Market rate.

This rate reflects the costs broker-dealers pay when borrowing money from banks.

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