econ ch. 13

open market operations

the buying and selling of treasury securities to control the money supply. buying treasury securities increases the money supply while selling decreases the money supply.

if velocity is constant, inflation is likely to occur when...

the money supply grows at a faster rate than real GDP

Federal Reserve Districts

the twelve banking districts created by the Federal Reserve Act. Board of Gov consists of 7 members appointed by U.S. president to 14-yrs, non-renewable terms. One of the board members is appointed to a 4 yr, renewable term as chairman.

Reserves

Deposits that a bank keeps as cash in its vault or on deposit with the Federal Reserves.

discount policy

Discount loans from Fed= change in reserves of bands= the process of creating money

Fractional reserve banking system

A banking system in which banks keep less than 100 percent of deposits as reserves

bank panic

A situation in which many banks experience bank runs at the same time

bank run

A situation in which many depositors simultaneously decide to withdraw money from a bank

Quantity Equation

M x V = P x Y or, V = P x Y / M

reserve requirements

Regulations on the minimum amount of reserves that banks must hold against deposits.

Required Reserves

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

Required Reserves Ratio

The minimum fraction of deposits banks are required by law to keep as reserves.

lender of last resort

a central bank is the lender of last resort, the last place, all others having failed, from which banks in emergency situations can obtain loans

quantity theory of money

a theory about the connection between money and prices that assumes that the velocity of money is constant

An initial decrease in a bank's reserves will decrease checkable deposits

by an amount greater than the decrease in reserves.

The real-world deposit multiplier is...

less than the simple deposit multiplier. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier.

Federal resever policy tools are...

reserve requirements, discount policy, and open market operations.

Excess reserves

reserves that banks hold over and above the legal requirement

hyperinflation

severe and prolonged inflation that results in the value of money losing its acceptability as a medium of exchange.