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21 Cards in this Set

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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.
These members are appointed for 14yr. terms by President of U.S.A.
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.
Ben Bernake as Chair of Board of Governors is responsible for economic forecasting & interventions through adjustments in prime interest rate.
What are Federal Reserve Districts?
The twelve banking districts created by the Federal Reserve Act.
Each F____ R_____ D_____ is composed of multiple states and operates under The Federal Reserve Act which prevents any one region from exploiting the Central Bank's power at another's expense.
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.
This council meets with the Board of Governors four times per year.
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.
FOMC's decisions can influence financial markets, rates on home mortgages, & other economic institutions around the world.
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.
The Fed can "clear" millions of checks at any one time using high speed equipment within a two-day period.
What is a Bank Holding Company?
A company that owns more than one bank.
The Board of Governors approve or disapprove mergers and charters based on finding & recommendations of Federal Reserve Bank.
What is the Federal Funds Rate?
Interest rate that banks charge each other for loans.
Banks can alwo borrow from the Federal Reserve at this rate of interest.
What is the Discount Rate?
Rate the Federal Reserve charges for loans to commercial banks.
Federal Reserve acts as a lender of last resort & makes emergency loans to commercial banks so they can maintain required reserves.
What is Net Worth?
Total assests minus total liabilities.
Any bank going to Fed for emergency loans too often will be subjet to financial review and close government supervision.
What is Money Creation?
The process by which money enters into circulation; not the mere printing of money.
Banks creat money not by printing it but by charging interest on loans.
What is the Required Reserve Ration (RRR)?
The ratio of reserves to deposits required of banks by the Federal Reserve.
This ensures that banks will have enought funds to supply customers' withdrawl needs.
(Generally a 10% RRR)
What is the Money Multiplier Formula?
Amount of new money that will be created with each demand deposit, calculated as 1 divided by RRR.
Increase in Money Supply = initial cash deposit x 1/RRR
What are Excess Reserves?
Reserves greater than the required amounts. (Est. to be betw. 2 & 3.
Ensure that banks will always be able to meet theri customers' demands and the Fed's reserve requirements.
What is the Prime Rate?
Rate of interest banks charge on short term loans to their best customers.
Usually given to large companies with good credit ratings. Reflects changes in the discount rate.
What are Open Market Operations?
The buying and selling of government securities to alter the supply of money.
Most used monetary policy tool involving bond purchases and bond sales
What is Monetarism?
the belief that the money supply is the most important factor in macroeconomic performance.
This policy alters the supply of money, which in turn affects interest rates, which affect level of investment & spending in the economy.
What is Easy Money Policy?
Monetary policy that increases the money supply. This lowers interest rates & encourages spending.
Used when the Fed wants to stimulate or expand income due to economic contraction.
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
Monetary policy used when economy is expanding rapidly causing high inflation.
What is Inside Lag?
Delay in implementing monetary policy. (up to 1 yr. to recognize problem)
Occur due to length of time needed to identify a problem in Economy or when recognized it takes additional time to enact policies.
What is Outside Lag?
The time it takes for monetary policy to have an effect.
For Fiscal Policy, this time period lasts as long as is required for new government spending or tax policies to take effect & begin to affect Real GDP and the Inflation Rate. (1-2 yrs. to show change effects)