econ
more than one-half of the money in the U.S. economy is created by
commercial banks and thrift institutions
open market operations
consist of buying and selling government securities. Buy or sell bonds. (most common)
discount rate
interest rate that the FED charges commercial banks for emergency loans
weaknesses of monetary policy
1. cyclical asymmetry 2. does not account for velocity of money 3. less control by FED in the future
the three formal advisory councils to the board of governors are
1. federal advisory council 2. thrift institutions advisory council 3. the consumer advisory council
tight money policy
1. increase the reserve ratio 2. increase discount rates 3. sell bonds
easy money policy
1. lower the reserve ratio 2.lower discount rate 3.buy bonds
strengths of monetary policy
1. speed and flexibility 2. isolation from political pressures 3. success since the 1980's
goals of monetary policy
1.price level stability 2. FE stability 3. economic growth
when the FED provides loans to commercial banks
100% of those funds are excess reserves letting banks loan out all of those funds
there are ... regional reserve banks
12
the members of the federal reserve boars serve
14 year terms
When was the federal reserve created?
1913
when do federal bonds mature?
30 years; after 30 years the government will pay you for your bond
deflation will shift both the transactions demand curve for money and the total money demand curve to the
left
the money supply is backed by the
governments ability to control the supply of money to keep the value stable
buy bonds leads to
inc. money supply > dec. interest rates > inc. quantity of interest demanded > inc. in aggregate demand > inc. in GDPr
open market during a recession buying bonds from the public
increased wealth is consumed (MPC) and some wealth is saved (MPS). the amount consumed stimulates the economy and the amount saved increase the banks excess reserves leading to stimulation of the economy
within the make up of the federal bureaucracy, the federal reserve system is an
independent agency
relatively recently, congress has ended restrictions on banks merging with ... and other firms offering financial services
insurance companies, security firms
par value
price of the bond
to say the federal reserve banks are quasi-public banks means that they are
privately owned but managed by the publics interest
the use of U.S. dollars in foreign countries helps foreign buyers and sellers to overcome
problems with their domestic currencies
new price of your old bond=
(rate of return/new IR) x 100
new today interest rate=
(rate of return/new price of old bond) x 100
the basic policy-making body in the U.S. banking system is the
Board of Federal Reserves
open market during recession buying bonds from commercial banks
FED increases the excess reserves of the commercial banks causing banks to be able to loan out more money increasing Ig which stimulates the economy
who is most of the american debt owned by?
americans
bond
a loan to the government
how many commercial banks are now operating in the U.S.
about 8,600
electronic money
closely associated with smart cards
selling bonds leads to
dec. money supply > inc. interest rates > dec. quantity of interest demanded > dec. in aggregate demand > dec. in GDPr
the use of U.S. dollars in foreign countries actually benefits the U.S. because
each dollar costs less than a dollar to produce
economy is in a recession and the FED decides to increase the money supply
easy money policy
lowering discount rates
encourages commercial banks to increase excess reserves by borrowing from the FED. These excess reserves are then loaned out and increases the money supply
the ... insures deposits up to $100,000 in commercial banks and thrifts
federal deposit corporation
who carries out monetary policy
federal reserve
in the U.S. economy the money supply is controlled by the
federal reserve system
what federal act allowed restrictions to be dropped on bank merging's?
financial services moderation act of 1999
research for industrially advanced countries indicates that the more independent the central bank, the
lower the average annual rate of inflation
reserve ratio
lowering the reserve ratio transforms the reserve ratio into excess reserves which enhances the banks ability to create more money through lending and increase the multiple by which those loans will increase the money supply
federal reserve banks are privately owned and publicly controlled central banks whose basic goal is to control the ... in promoting the general economic welfare
money supply and interest rates
firms whose central business if to provide individual account shares of collections of stocks, bonds, or both are known as
mutual finds companies
old bond prices move
opposite to current interest rates
smart cards
plastic cards that contain computer chips that store account balances
the major countries in which citizens hold and use the large quantities of U.S. dollars are
russia, argentina, and poland
he term thrift institutions or thrifts include
savings and loans associations, mutual saving banks, and credit unions
where does a bond holder sell their bond early?
secondary bond market
firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as
security firms
there are ... members of the federal reserve board
seven
treasury bonds
sold by government to make up for budget deficit; makes up the national debt
monetary policy
the deliberate changes in the money supply to influence interest rates and thus the total level of spending in the economy
the federal open market communities
the group that sets the federal reserve systems policy on buying and selling government securities (bills, notes, and bonds)
interest rate
the interest rate the bond pays for the rest of its time based on the interest rate of the day it was bought on ex. if the bond was bought in 1980 and the IR was 5% then it will remain 5% for 30 years
the seven members of the board of governors of the federal reserve system are appointed by ... with conformation of the ...
the president; senate
rate of return
the profit you make off the bond
economy is suffering from an inflation and FED decides to decrease the money supply
tight money policy