Economics — Unit 8: "Federal Reserve and Monetary Policy." (Ch. 14)

What does the FED do in response to a recession:

Buy Government Securities, Decrease money in the reserves, Lower interest rates.

Who does the United States owe the biggest share of the National Debt?

The Federal Reserve System: U.S. Debt Holdings of $5.351 Trillion.

Discount Rate:

The interest rate the fed charges member banks for the use of their reserves.

Prime Rate:

The rate that banks charge their good customers.

Moral Suasion:

Unofficial pressure that the federal reserve policy makers put on the banking system.

Easy Money Policy:

Usually adopted during a recession to put money in the economy.

Tight Money Policy:

Usually adopted during inflationary times to take money out of the economy.

Definition of Monetary Policy:

Changes in the monetary supply intended to maintain stable prices, full employment and economic growth.

Where does the government get the money when it wants to spend more than it takes in?

It has to borrow money from - foreign countries. - other entities.

Chairman of the Federal Reserve:

Jerome Powell (since 2018).

Reserve Requirements:

Money that must be held by the banks in their vaults or in their accounts at a district Federal Reserve Bank.

Background of the Federal Reserve System:

Not part of the government. No power to tax, power is in its ability to control the money supply. Central bank of the United States. Independent organization accountable to its member banks, ownership and control by the member banks. (Optional membership) National level & district level, system divided into 12 districts. Manages flow of money in and out of the economy, has control over the reserves in its banks. Run by the Federal Reserve Board of Governors. Leadership: 7 officers, each with 14 year terms. Stated role: to furnish an elastic currency and to establish a more effective supervision of U.S. Banking.

The Three Tools of the Federal Reserve that control Monetary Policy:

Open Market Securities, Reserve Ratio, Discount Rate

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