Economic Factors & Business Information Flashcards
Chapter 4 Core Concepts
What is monetary policy?
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
What are the goals of monetary policy and ‘The Fed’?
They have two mail goals:
- Economic growth (low unemployment)
- Manageable inflation levels
What is the Monetarist Theory?
This theory states that the Fed’s actions are the most significant economic influence.
What is the Prime Rate?
The prime rate represents the interest rate banks charge when lending to their best customers, typically corporations and institutions.
What is the Federal Funds rate?
The average rate banks charge when lending to other banks
What is the Discount Rate?
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
What is the Broker Loan rate?
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.
