econ ch. 13
open market operations
the buying and selling of treasury securities to control the money supply. buying treasury securities increases the money supply while selling decreases the money supply.
if velocity is constant, inflation is likely to occur when...
the money supply grows at a faster rate than real GDP
Federal Reserve Districts
the twelve banking districts created by the Federal Reserve Act. Board of Gov consists of 7 members appointed by U.S. president to 14-yrs, non-renewable terms. One of the board members is appointed to a 4 yr, renewable term as chairman.
Reserves
Deposits that a bank keeps as cash in its vault or on deposit with the Federal Reserves.
discount policy
Discount loans from Fed= change in reserves of bands= the process of creating money
Fractional reserve banking system
A banking system in which banks keep less than 100 percent of deposits as reserves
bank panic
A situation in which many banks experience bank runs at the same time
bank run
A situation in which many depositors simultaneously decide to withdraw money from a bank
Quantity Equation
M x V = P x Y or, V = P x Y / M
reserve requirements
Regulations on the minimum amount of reserves that banks must hold against deposits.
Required Reserves
Reserves that a bank is legally required to hold, based on its checking account deposits
Required Reserves Ratio
The minimum fraction of deposits banks are required by law to keep as reserves.
lender of last resort
a central bank is the lender of last resort, the last place, all others having failed, from which banks in emergency situations can obtain loans
quantity theory of money
a theory about the connection between money and prices that assumes that the velocity of money is constant
An initial decrease in a bank's reserves will decrease checkable deposits
by an amount greater than the decrease in reserves.
The real-world deposit multiplier is...
less than the simple deposit multiplier. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier.
Federal resever policy tools are...
reserve requirements, discount policy, and open market operations.
Excess reserves
reserves that banks hold over and above the legal requirement
hyperinflation
severe and prolonged inflation that results in the value of money losing its acceptability as a medium of exchange.
