Monetary policy Flashcards
(25 cards)
What is the fractional reserve banking system?
Where banks keep less than 100% of their deposits as reserves
What is it called when depositors lose confidence in their bank and withdraw their money all at once?
Bank Run
What causes a bank panic?
If a lot of banks experience a bank run
What can break the negative feedback loop?
A Lender of last resort
In 1914 what did the federal reserve system create?
Discount Loans
What are discount loans?
Loans made to banks from the Feds charging a rate called the discount rate .
The discount rate gives banks a cheaper rate. True or False?
False
Why do economists feel that the federal reserve caused the great depression to worse?
They didn’t lend to all the banks that needed help feeling that it would create “Bad Practice”.
How many federal reserve system locations are there?
12
How long do they serve on the board of governors?
Non-renewable 14 year term
How long is the term for someone who is appointed chair on the board of governors?
4 year renewable term
What does FOMC stand for?
Federal Open Market Committee
How many members are in the FOMC?
12 Members, including 7 from the board of governors and 5 federal Presidents
What does the FOMC do?
Conducts America’s monetary policy
What is monetary policy?
The actions the federal reserve takes to manage money supply and interest rates to pursue macroeconomic policy objectives
What are the main federal tools for managing?
Open market operations, discount policy, Reserve requirements
What is the open market operation
The buying and selling of treasury securities by the federal reserve in order to control the money supply
How does the Fed increase money supply?
The trading desk in New York will buy U.S treasury securities (Bills, notes, and bonds)
What happens to the loan and money supply when the discount rate is decreased?
Loans and money supply are increased
What happens to the loan and money supply when the discount rate is increased?
Loans and money supply are decreased
What happens when the reserve requirements are increased?
Loans and money supply are decreased
What happens when the reserve requirements are decreased?
Loans and money supply are increased
How can the feds increase money supply?
Buy treasury security, Decrease the discount rate, Decrease reserve ratio
What are the four goals of monetary policy?
1.) Price Stability
2.) High Employment
3.) Stability of financial markets and institutions
4.) Economic Growth
