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23 Cards in this Set

  • Front
  • Back
What is the Board of Governors of the Federal Reserve?
7 members, appointed by president and approved by Congress; have 14-year appointments; one governor is the board's chairman; neither the legislative or the executive branch exerts control on the Fed
How many districts does the federal reserve have?
12 districts each with its own president
What tools does the fed have to influence the supply of money?
1. reserve requirement
2. open market operations
3. open market repurchase agreement
4. the discount rate
What is a fractional reserve banking system?
bank must hold some portion of the funds that savers deposit in a form approved by the Fed
What is the required reserve ratio?
ratio of mandatory reserves to deposits
What are a banks total reserves?
equals required reserves plus any excess reserves
What are open market operations?
most powerful instrument; Fed can buy and sell, in open debt markets, government securities for its own account- US T-bonds or bills or obligations of federal agencies; mostly use t-bills
What is the Federal Open Market Committee- FOMC?
unit of the Fed that decides on the general issues of changing the rate of growth in the money supply, by open market sales or purchase of securities
What is the trading desk of the Federal Reserve Bank of New York?
implements the policies of the FOMC, through open market operations; transacts with big securities firms or commercial banks; selling securites decreases money supply, buying securities increases it
What are repurchase agreements (repos) or reverse repos?
means to bring about a temporary change in the level of reserves in the system; in a repo, government buys securities from a firm, increasing the money supply with agreement that the Fed will sell them back
What is the discount rate?
rate at which banks borrow from the fed; least effective tool at the Fed's disposal
What is a numeraire?
unit that measures wealth; dollar, yen etc...; properties include safety, divisibility, high liquidity
What are money aggregates?
M1, M2 etc...
What is the monetary base?
it is the most basic monetary aggregate; termed high-powered money; defined as currency in circulation plus total reserves in the banking system
What is a medium of exchange?
currency and demand deposits
What is M1?
narrow measure of the money supply; sum of currency and demand deposits
What is M2?
M1 + all dollars held in time and savings accounts at banks and thrift institutions, plus all dollars invested in retail money market mutual funds, plus additional accounts such as overnight repo agreements
What are M3 and L?
M2 + certain other financial assets, long-term time deposits, commercial paper, banker's acceptances, and some other Treasury securities; L stands for liquid
What is the velocity of money?
ratio of the money supply to the economy's income; measures the average amount of transactions carried by a dollar; if economy's velocity is stable; monetary policy could achieve desired levels of income by targeting M1
What is the money multiplier?
reserves injected into the system/reserve requirement ratio
What does open economy mean?
foreign firms and investors play a large role in economic activity
What are international reserves?
each country owns a large amount of each of the world's major currencies in order to maintain stable currency exchange ratios
What is the G-5?
US, Great Britain, France, Japan and Germany