Econ Monetary Policy & Money and Federal Reserve

What is money? What are its main functions?

Money is any commodity or token that is generally acceptable as a means of payment. A means of payment is a method of settling a debt. Money has three other functions: Medium of exchange Unit of account Store of value

What is the Feds Dual Mandate? How does it achieve these two goals?

That is, the Fed is expected to be able to maintain full employment and keep the price level stable. This is known as the Fed's Dual Mandate

What role do the Congress and the President play in monetary policy?

The Fed's FOMC makes monetary policy decisions. The Congress plays no role in making monetary policy decisions. The Fed makes two reports a year and the Chair testifies before Congress (February and June). The formal role of the President is limited to appointing the members and Chair of the Board of Governors.

What are the Feds main goals?

The Fed's goals are to keep inflation in check, maintain full employment, moderate the business cycle, and contribute toward achieving long-term growth. In pursuit of its goals, the Fed pays close attention to the federal funds rate—the interest rate that banks charge each other on overnight loans of reserves.

What is the FOMC?

The Federal Open Market Committee (FOMC) is the main policy-making group in the Federal Reserve System. It consists of the members of the Board of Governors, the president of the Federal Reserve Bank of New York, and the 11 presidents of other regional Federal Reserve banks of whom, on a rotating basis, 4 are voting members. The FOMC meets every six weeks to formulate monetary policy.

What is the Federal Reserve?

The Federal Reserve System (the Fed) is the central bank of the United States. A central bank is the public authority that regulates a nation's depository institutions and controls the quantity of money.

What is the Feds monetary policy instrument(s)? How do they make decisions?

a variable that the Fed can directly control or closely target. The Fed has two possible instruments: 1. Monetary base 2. Federal funds rate—the interest rate at which banks borrow and lend overnight from other banks. The Fed's policy instrument is the federal funds rate. The Fed sets a target for the federal funds rate and then takes actions to keep it close to its target.