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