F5 Monetary Policy

Three main tools fo the Federal Reserve

1 open market operations 2 interest rate changes 3 reserve requirement changes

Monetary policy the Federasl reserve can use tools to effect the liquidity of the money supply

6 rate of growth and inflation 5 amount invested in the market 4 amount lent by banks 3 interest rates charged by banks 2 amount available for banks to lend 1 liquidity of the money supply

cause and effect monetary policy is based on expectation of cause and effect

6 rate of growth and inflation 5 amount invested in the market 4 amount lent by banks 3 interest rates charged by banks 2 amount available for banks to lend 1 liquidity of the money supply

The Structure of the Federal Reserve is managed by a central board of goverernors

Directors control banks' lending activities The Fedeal Open Market Committee makes Monetary policy decisions

Open market operations influence the ____________directly. In order to lower the Federal Funds Rate, the Fed will _____________securities, which _______________ the money supply in banks.

Federal Funds Rate buy increaes

Based on the information presented in the video, which of the following is likely to occur as a result of the Fed decreasing the money supply? Check all that apply. Employers will bring on large numbers of new employees. The inflation rate will stop growing or decrease. Consumers will spend less money, causing an economic slowdown. Prices for durable goods will increase dramatically. The unemployment rate may rise.

The inflation rate will stop growing or decrease. Consumers will spend less money, causing an economic slowdown. The inflation rate will stop growing or decrease. Consumers will spend less money, causing an economic slowdown.

Responding to recession the Fed responds to recession by increasing the money supply

buying securities charging banks less interest lowering interest rates for lending to banks lowering reserve requirements Result interest rates decrease, and consumers can borrow money more easily

3 changing reserve requirements the fed can change the amounts it requires banks to hold in reserve

by law, banks must hold some of ther funds in reserve changes to reserve requirement affects the amount banks can lend deposits loans reserves

1 open market operations can buy and sell securities from banks to influence the supply of money.

can buy and sell securities from banks to influence the supply of money. bonds or mortgages buying securites gives banks more money to lend conver side: the can contract money supply by: selling securites give banks less money to lend

Money Supply economist study the money supply by breaking it down into seperate categories based on liquidity of money

categories investment accounts harder less liquid savings accounts harder less liquid demand accounts currency in circulation

Choose the best word or phrase from each drop-down menu. The Federal Reserve is the within the United States. The Federal Reserve's role is to promote economic growth and by enacting monetary policy. established the Federal Reserve system to avoid consumer panics.

central bank stability Federal Reserve Act of 1913

Which factor most directly influences how much money consumers are willing to borrow? influencing economic growth influencing unemployment rates changing inflation rates changing interest rates

changing interest rates

1 Federal funds rate another way open market operation

changing the money supply affects the federal funds rate. banks lend each other money that is stored by the federal Reserve Increasing the money supply lowers the rates that banks charge each other. money supply up available credit up interest rate down

contractionary policy

contracting the liquidity of the money supply

Federal Reserve is the central bank of the United States

created by the Federal Reserve Act of 1913 was established to implement monetary policy is often call the FED

Scenario: Over the last several months, there has been a rapid increase in the number of loans that banks have provided for mortgages and small businesses. This change has raised concerns for the Fed. Today, the Fed has announced an increase in the interest rates that it is charging banks. In this scenario, what is the Fed trying to do by increasing interest rates? Check all that apply. decrease the amount of money that banks have to lend increase the money supply for banks reduce the amount of available credit discourage consumer borrowing by increasing interest rates on loans encourage banks to loan more mo

decrease the amount of money that banks have to lend reduce the amount of available credit discourage consumer borrowing by increasing interest rates on loans

Contractionary Policy involves decreasing the money supply. its goal is to decrease inflation by:

decreasing the amount of credit available increasing interest rates money supply down available credit down interest rates up inflation down expected result: slower economic growth declining inflation lending and investment decline, causing price changes to slow down A(n) monetary policy can cause interest rates to increase.

expansionary policy

expanindg the liquidity of the money supply

Choose the best word from each drop-down menu. Increasing the amount of credit that is available within an economy is done through monetary policy. The potential to cause inflation is accompanied by monetary policy. A(n) monetary policy can cause interest rates to increase.

expansionary expanisionary contractionary

Expanisionary and contractionary approaches types of monetary policy

expansionary policy contractionary policy

The Federal Reserve increases the money supply when it is trying to encourage the economy to . Consumers are more willing to spend using credit when the money supply is higher because interest rates are . One major positive effect of increasing the money supply is in the unemployment rate.

grow lower decrease

What economic challenge did the newly formed American federal government face? Which act created nationally chartered banks and circulated notes backed by the federal government? What economic event led to the creation of the Federal Reserve?

inflation national banking act panic of 1907

Identify the goals of the central bank when creating monetary policy. Check all that apply. reducing employment influencing the business cycle reducing economic growth encouraging economic growth avoiding periods of time where little credit is available

influencing the business cycle encouraging economic growth avoiding periods of time where little credit is available

Expansionary Policy

involoves increasing the money supply it goal is to lower unemployment by: increasing the amount of credit available decreasing interest rates money supply up available credit up interest rates down employment up expected result:economic growth and lower unemployment Increasing the amount of credit that is available within an economy is done through monetary policy. The potential to cause inflation is accompanied by monetary policy.

The Bank for Banks The Federal Reserve is a bank for the nation's financial institutions

lends banks money stores money for banks regulates banks' behavior processes payments between banks serves as a lender of last resort

2 Interest Charge Rates Fed can change interest rates that it charges banks when it lends them money. can change interest it is paid

lower interest rates give banks more money to lend higher interest rates give banks less money to lend federal reserve interest banks

Monetary policy is carried out when a central bank manipulates the money supply The FED

main goals Monetary policy controlling inflation reducing unemployment

Recession and growth central banks use monetary policy to steer the economy away from recessions and toward growth

recession involve: increased unemployment decrease credit decreased growth want to try to keep economic output high

The Fed uses open market operations by buying and selling . The rate at which banks lend money and charge one another for storing money in the Fed is known as the . When the Fed carries out open market operations to lower the Federal Funds Rate, the money supply and available credit will likely .

securities federal funds rate increase

Responding to High inflation too mucgh money in market decrease money supply Fed responds to this by

selling securities charging banks more interest raising interest rates for lending to banks raising reserve requirements result interest rates increase, and consumers can borrow money less easily

Based on the information presented in the video, what is the main goal of buying and selling government securities? to reduce the strength of US currency to decrease the unemployment rate to increase the inflation rate to influence the Federal Funds Rate

to influence the Federal Funds Rate