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11 Cards in this Set

  • Front
  • Back
When Fed buys securities, what happens to money supply and why?
· Potential of Money Supply increases
· Buying Securities are similar to Getting Loans from Com Banks/Public - Commerical Banks' Reserves Increase (MONEY CREATION)
Who does Fed buy securites from?
Public and/or Commercial Banks
· Either way, Reserves of Commercial Banks Increase
What are Open-Market Operations?
The buying of government bonds from, or the selling of government bonds to, commercial banks and the general public.
When the Fed sells securities, what happens and why?
· Potential of Money Supply Decreases
· Similar to Paying Back a Loan - Commercial Banks' Reserves Decrease (MONEY DESTRUCTION)
Securities are?
Public Debt - Money Borrowed by Government from the public
3 tools of monetary policy
1) Open-Market operations
2) Reserve Ratio
3) Discount Rate
Largest Single Asset in Fed's consolidated balance sheet
Largest Single Liability in Fed's consolidated balance sheet
Federal Reserve Notes - Paper money issued by the Fed Banks
If securites bought directly from Commercial Banks, (Com Banks Balance Sheet)
Commercials Banks Asset: (- Securities, + Reserves) NO LIABILITIES
If securites bought directly from Commercial Banks, (Fed Banks Balance Sheet)
Fed Asset: (+ Securities)
Fed LB: (+ Reserves of Commercial Banks)
Bigger potential to Increase Bank Lending IF:
Securites purchased DIRECTLY from Commercial Banks