Federal Reserve and Monetary Policy
Federal Reserve
This government entity is the nation's central bank, issues currency, and controls monetary policy.
increase discount rate
To combat inflation, this is the action the Fed will take on the discount rate.
increase the reserve requirement
To combat inflation, this is the action the Fed will take on the reserve requirement.
sell bonds
To combat inflation, this is the open market operation the Fed will use.
Sell securities/bonds, raise the discount rate, raise the reserve requirement
To combat inflation, what options does the Fed have with its 3 primary tools?
decrease discount rate
To combat unemployment, this is the action the Fed will take on the discount rate.
decrease the reserve requirement
To combat unemployment, this is the action the Fed will take on the reserve requirement.
buy bonds
To combat unemployment, this is the open market operation the Fed will use.
Buy securities/bonds; lower the discount rate, lower the reserve requirement
To combat unemployment, what options does the Fed have with its 3 primary tools?
tax increases/decreases spending increases/decreases or combo
What actions are taken as part of FISCAL POLICY?
a measure of value/standard of value/unit of account
When you are estimating your total expenses for college next year, you are using money as _____.
Congress and the president
Who is charge of FISCAL POLICY?
Expansionary- loose money- monetary policy
buy bonds, low interest rate, increase money supply
discount rate
interest rate charged by the Fed to banks
Federal Board of Governors
oversees banks and determines monetary policy
FOMC- or the Board of Governors
policy making body of the Fed
Main tools of monetary policy
reserve requirement, open market operations, discount rate
Contractionary-tight money- monetary policy
sell bonds, raise interest rate, decrease money supply
Prime Rate
this is the interest rate that banks charge their best customers.
open market operations
The Fed buys and sells bonds on the open market; it is the tool the Fed uses MOST often.
reserve requirement
The percentage of deposits that the Fed requires banks to keep on hand to cover customer withdrawals; it is the tool used LEAST often; major deterrent to bank panics.
Jerome Powell
Chairman of the Federal Reserve
commodity money
It is money that has another use , such as cigarettes used for transactions in prison.