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25 Cards in this Set
- Front
- Back
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Identity the three (3) principal tools of monetary policy?
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(1)Open-market operations
(2)Required reserve ratio (3)Discount rate |
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What is the MOST IMPORTANT tool of monetary policy?
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Open-market operations, because they quickly affect the Federal Funds Rate (FFR).
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Explain functions of the Fed and FARR COLM SUPIC
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Fa - fical agent
Rr - required reserve ratio Co - collecting check Lm - lending money Sup - supervising banks Ic - issuing currency |
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Which function of the fed is most important?
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Controlling the money supply
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Who sits on the FOMC?
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(a) President of NY Fed Bank
(b) Four (4) of the remaining presidents on a one (1) year rotating basis. (b) Seven (7) members of the Board of Governors. |
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What does the FOMC do?
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The committee directs the purchase and sale of gov't securities in the open market.
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List the three (3) functions of money.
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Store of value, unit of account, medium of exchange
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Explain store of value
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Money allows people to transfer their purchasing power from present to future.
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Why did the U.S. Congress establish the Federal Reserve as an independent agency?
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(a) To protect it from political pressures so that (b) it can focus on controlling money supply and meeting the needs of the economy.
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Define the M1 Money Supply
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Includes currency and checkable deposits.
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Why aren't savings included in M1?
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Savings and time-deposits are not liquid enough to be considered part of M.
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Identify three (3) factors that give money its value.
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Scarcity, legal tender, acceptability
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Discuss acceptability
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The extent to which firms will accept currency for goods and services.
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Discuss legal tender
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The government mandates that money may be legally used to purchase.
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Scarcity
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The amount of currency which is produced will influence the value of the dollar.
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Define the ROC-KY - tools monetary policy
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(1)Open-market operations
(2)Required reserve ratio (3)Changing the discount rate |
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What's the most important tool of monetary policy
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Open-market operations, because changes in these affect the market most quickly
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Discuss open market ops
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Fed buys/sells gov't securities to influence the federal funds rate
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Discuss reserve rate
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Reserve Rate goes UP, then Money supply goes DOWN
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Discuss discount rate
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If Discount Rate goes UP, banks will not borrow as much from Federal Reserve. Therefore this action will lower the money supply.
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Describe the effects of comm. banks reducing indebtedness to the Fed
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Has a negative effect on money supply, money supply goes DOWN, interest rate goes UP.
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Treasury disburses space research
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Money supply goes up, interest rate goes DOWN
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Trace the SPICI view of cause-effect that results from easy money (SPICI)
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Easy money -> $ supply goes UP -> price of $ goes DOWN -> interest goes DOWN -> consumption and investment UP
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Trace the SPICI view of cause-effect that results from tight money (SPICI)
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Tight -> Money supply goes DOWN -> interest goes UP -> consumption and investment go DOWN
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What has been the recent focus of monetary policy?
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Easy money. Federal reserve has done everything possible to lower the interest rate.Guarantee loans.
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