Economics Chapter 14 Notes Federal Reserve System

depositary institution

(Case 2) accepts deposits but does not make loans

reserves

(Case 2) deposits that banks have received but have not loaned out. They are deposits that a bank keeps as cash in its vault or on deposit with the Federal Reserve.

Structure

-Board of Governors -Reserve Banks -Federal Open Market Committee (FOMC) -Board of Directors

loan

A _ is an asset to a bank because it represents a promise by the person taking it out to make certain specified payments to the banks.

Bankers' Bank

Accepting reserve deposits and making loans to banks and other financial institutions. In making loans, the Federal Reserve is the "lender of last resort", meaning that the Fed is available to lend money should other avenues (in example other commercial banks) not be available.

Central Bank

An institution designed to oversee the banking system and regulate the quantity of money in the ecnonomy

profit

Banks are in business to make a _ like other firms. They earn _ primarily from interest on loans and securities hold.

consumer, commercial

Banks make _ loans to households and _ loans to businesses.

liquidity

Banks must seek safety by having _ to meet cash needs of depositors and to meet check clearing transactions.

Federal Reserve

Central bank of of the United States

Board of Directors

Has the responsibility ranging from the supervision of the Reserve Bank -assigned by the Federal Reserve Act- to making recommendations on monetary policy.

world without banks

How banks affect money supply? Case 1:_

100

How banks affect money supply? Case 2: _ percent reserve banking

Fractional-reserve

How banks affect money supply? Case 3: A banking system in which banks hold only a fraction of deposits as reserves. Fractions of checkable deposits are backed up by cash in bank vaults or deposits at the central bank.

deposits

If banks hold all deposits in reserve, banks do not influence the supply money.

Quasi-Public Banks

It is owned by member banks but controlled by the government's Federal Reserve Board.

one

Only _ member of the Board of Governors may be selected from any one of twelve banks.

seven, 14

The Board of Governors is the _ members whom are appointed by the President and confirmed by the Senate to serve _-year terms in office.

monetary

The Board of Governors uses formulation of _ policy

lends money

The Fed _ to banks and thrifts and charges them an interest rate called the discount rate.

Federal Reserve Notes

The Fed issues currency; "_," in which is the paper currency used in the U.S. monetary.

money

The Fed regulates the supply of _, and this in turn enables the Fed to influence the money supply (and thus interest rates) according to the needs of the economy.

reserve requirements and holding reserves

The Fed sets _, which are the fractions of checking account balances that banks must maintain as currency reserves.

banks

The Fed supervises the operation of _.

12

The United States is divided into _ Federal Reserve districts, each of which has a Federal Reserve bank. The real power within the Federal Reserve System, however, lies in Washington, DC, with the Board of Governors, which consists of 7 members appointed by the president.

President, Senate

The _ designates the Board of Directors, and the _ confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms.

Federal Open Market Committee (FOMC)

The _ is composed of the seven members of the Board of Governors and five Reserve Bank presidents. It is the group the makes the key decisions affecting the cost and availability of money and credit in the economy.

Reserve Bank

The directors of the Board of Directors appoint the _ presidents (the chief executive officers) and the first vice presidents (the chief operating officers) to five-year terms, subject to approval by the Board of Governors. The _ directors also appoint all officers to the Bank.

fiscal agent

The fed acts as a _ in which they are a provider of financial services for the Federal government.

check collection

The fed provides _.

Fed

The federal reserve was created in 1913 after a series of bank failures.

12, Board of Governors.

There are _ Federal Reserve Banks. They operate under the general supervision of the _ in Washington. Their primary responsibility of the central bank is to influence the flow of money and credit in the nation's economy.

deposits

When do banks create money? When hold only a fraction of _ in reserve. Bank's also loan out some of its reserves and creates money, but it does not create any wealth.

Central Bank

implement the policies of the Board of Governors.

Deposits

include checking accounts, savings accounts, and certificates of deposit, and are liabilities to banks because they are owed to the households or firms that have deposited the funds.

Monetary Policy

is carried out by the 14-member Federal Open Market Committee.

required reserves

reserves that a bank is legally required to hold, based on its checking account deposits.

excess reserves

reserves that banks hold over and above the legal requirement.

required reserve ration (RR)

the minimum fraction of deposits banks are required by law to keep as reserves; based on its checking account deposits.