Monetary Policy and the Federal Reserve Flashcards
Federal Bank
Regulate and oversee commercial banks by making sure banks have enough money in reserves
Increase or decrease money supply, which increases or slows down the economy
Interest rate
Price of borrowing money
Fractional reserve banking
When you deposit money in a bank, the bank saves a portion (about 10$) and loans the rest out
Reserve requirement
The fractional amount of reserves a bank is required to have
Discount rate
The interest rate a central bank charges a commercial rate
Open market operations
The government buys or sells short term government bonds
Government bond (treasury bill)
financial instrument from the government. Banks hold these bonds because they earn interest and are less risky than stocks
Quantitative easing
When the central bank buys other financial instruments such as home loans
Excess reserves
the money from someone’s deposit that banks are free to loan out
Expansionary monetary policy
The fed increasing the money supply to stimulate the economy
Contractionary monetary policy
The fed decreasing the money supply to slow down the economy
