economics chapter 17: federal reserve system and monetary policy
what is ACH used for?
1. social security checks 2. payroll deposits 3. electronic bill payment
what are the 3 tools used by the government?
1. taxes 2. transfer payments 3. government spending
who are the members of the federal open market committee?
1. the 7 members of the board of governors 2. president of the new york district bank 3. 4 of the other 11 federal reserve bank residents
who many districts are there in the u.s.?
12
when was the federal reserve created?
1913
how any branch banks are in the u.s.?
24
how many governors are appointment by the president of the united states for a 14-year term?
7
what happened in the bank crisis of 1907?
The bank crisis of 1907 began in New York City with trust companies who had invested in things that were to risky. Within a two day period a dozen major trusts had gone under. Credit markets froze, stock market fell, and business confidence declined.
what did the panic of the bank crisis of 1907 cause?
The panic had lasted about a week, but the stock market crash led to a four year recession with unemployment rising from 3% to 8%.
who met privately to discuss creating the federal reserve system?
a group of men went to jeckle island, off the coast of georgia
rumors that a bank did not have sufficient funds for withdrawals causes what?
a run on the bank
when the economy is growing fast and rising and inflation seems likely, what will the FED do?
adopt a tight money policy (a policy to decrease the money supply)
when the economy is slowing, what does the FED do?
adopt an easy money policy (policy to increase the money supply)
whose national bank operated for 20 years, but was not renewed in 1811?
alexander hamilton
where is alabama's federal reserve bank?
atlanta
what transfers between payers' accounts carried out without the use of check on a secure electronic funds transfer network?
automated clearing house (ach)
what did some states start to offer?
deposit insurance for the banks
what district is alabama?
district 6
what is the market in which banks lend and borrow reserves from each other for very short periods of time?
federal funds market
what is the interest rate on loans that banks make with other banks?
federal funds rate
what oversees the FED's operations in foreign exchange markets and helps oversee the u.s. security markets? (deals with savings bonds, t-bills, t-bonds)
federal open market committee
who is the group within the federal reserve that creates monetary policy?
federal open market committee
the FED can also transmit large payments for customers through what?
fedwire
what is what the fed sells, redeems, and pays interest on government securities
fiscal agent
what is the government policy to expand or contract the monetary policy?
fiscal policy
after the great depression, who along with congress wanted to strengthen the nation's banking system?
franklin d. roosevelt
when there is a bank run, a number of depositors do what?
go to withdraw their funds at the same time
what was the goal of FDR's idea for strengthening the banking system (glass-steagall act)?
improve the tools for the monetary policy
what is the largest source of income?
interest on government securities (example would by t-bills)
what does the board change and serve on the federal open market committee?
interest rates
what is the main problem with the FED?
it is not audited
who was the first female chair?
janet yellen
who is the current chair?
jay powell
the terms of the board of governors are staggered to do what?
limit the influence of politics on the monetary policy
what will the government do when expanding the money supply on discount rates (interest rates)?
lower the rates (banks will borrow more money)
how are the goals of the FED met by?
manipulations of the money supply
the chosen chair reports to congress twice a year on what?
monetary policy
what are actions taken by the central bank to manage interest rates and money supply in pursuit of macroeconomic growth?
monetary policy
what are the actions taken by the central bank to manage interests and the money supply in pursuit of macroeconomic growth?
monetary policy
who worked with john d. rochefeller and the u.s. secretary of the treasury to keep the reserve for banks and trust at a safe level?
new york banker j.p. morgan
the federal open market committee carries out what to manipulate the cost and availability of money in the economy?
open market operations
what is the interest rate banks charge their customers when they borrow money?
prime rate
what will the government do when contracting the money supply on discount rates?
rates will be raised (less loans taken by the bank)
what will the government do when expanding the money supply on the reserve requirement?
requirement will be lowered (banks have more money to loan out)
what will the government do when contracting the money supply on reserve requirements?
requirements will be raised (less money to loan)
what is a german banking family?
rothschild family
what will the government do when contracting the money supply on open market operations?
sell securities (takes money out of the economy)
what is the most important function of the board of governors?
set monetary policy
what is the commercial bank that receive its charter or license from a state government - subject to state laws?
state - chartered banks
all of the presidents of the federal reserve banks can attend the meeting of the federal open market committee, but who can vote?
the 4 appointment members
who decides if the money supply needs to expand or contract?
the FED
who is also the banker for commercial banks?
the FED
who operates the check clearing system?
the FED
what is dangerous about a run on the bank?
the bank does not have everyone's money on hand and no one can get their money/ also, the bank will have to close
who changes interest rates and serves on the federal open market committee?
the board
the board changes interest rates and serve on what?
the federal open market committee
what is another name for the central bank?
the federal reserve
who is an independent body within the federal government? (private agency)
the federal reserve
what was created in 1913 and marked the beginning of the modern era of american banking?
the federal reserve system
who will the FED buy (invest) government securities through?
the open market committee
the chosen chair are nominated by the whom for a 4-year term and must be confirmed by the senate?
the president
where does the FED's operating income come from?
the services it provides, not from the federal government
where does income over expenses go to?
the u.s. treasury
what is the money the government gives you and does not get anything in return?
transfer payments
central banks oversee banking systems and try to stabilize the economy?
true
if a bank does not join the federal reserve system, what can it still do?
use the financial services offered through the federal reserve bank in its district
the FED will set a target rate for inflation? what is the rate?
usually 2%
where do the board of governors meet?
washington d.c.
does a member bank keep a certain percentage of funds in the reserve?
yes
does each district in the u.s. have a federal reserve bank?
yes
what is the fiscal policy to contract the money supply?
1. raise taxes 2. decrease government spending 3. decrease government transfers
what are the 4 responsibilities of the FED?
1. Conduct the nation's monetary policy (maintain full employment price stability and promote economic growth 2. Regulate the nation's bank 3. Maintain the stability of the financial system 4. Provide financial services to the federal government (serves as the "bankers' bank) holds cash reserves, processing checks and providing electronic payments
what are the 3 advisory committees?
1. Federal Advisory Council (one member from each district) provides information on banking 2. Consumer Advisory Council 3.Thrift Institutions Advisory Council (savings bank, S&L and credit unions)
what are the responsibilities of the federal reserve banks?
1. Monitor the economic health of banks in their region 2. Provide information to the Open Market Committee that will help them determine the monetary policy 3. Hold cash reserves 4.Make loans to depository institutions 5. Issue and redeem government securities
what were the new responsibilities for the FED?
1. Responsible for the open market operations 2. Examine the accounting books of bank holding companies - companies that control banks
what are the 3 functions the federal reserve performs for the federal government?
1. The Fed is the bank for the federal government 2. The Fed is the fiscal agent for the federal government 3. The Fed puts newly printed paper currency and minted coins into circulation & removes old worn out bills
what are the 3 parts of the federal reserve?
1. board of governors 2. federal open market committee 2. federal advisory committee
what are the FED services?
1. check clearing 2. electronic funds transfers 3. distribution of currency
what are the goals of the FED?
1. economic growth 2. maximum employment/ stable prices 3. avoid inflation and recessions
who all is a part of the board of governors?
1. federal reserve banks 2. member banks 3. american people
what is the fiscal policy to expand the money supply?
1. lower taxes 2. increase government transfers 3. increase government spending
what are the 3 tools used by the FED to influence the economy?
1. open market operations 2. discount rate 3. reserve requirement
what created the federal open market committee?
banking act of 1935
where is alabama's district branch bank?
birmingham
what will the government do to expanding the money supply on open market operations?
buy securities (loaning money to the government)
what is an institution that oversees and regulates the banking system and controls the monetary base? (term)
central bank
the board has a what chosen among the 7 governors on the board?
chair
what is the processes of removing money from the bank account of the person who wrote the check, the payer and delivering it to the account of the check's recipient, the payer?
check clearing
since 2004, what is not longer physically shipped, but is instead scanned and sent electronically?
checks
the chosen chair reports to whom twice a year on monetary policy?
congress
when unemployment is low and the stock market is doing well, do you expand or contract the money supply?
contract
what was focused on full employment, price stability, and economic growth?
employment act of 1946
if your economy is doing poorly and unemployment is high, do you expand of contract?
expand
what did the glass-steagall act do?
expanded the duties of the FED
