The monetary system/ federal reserve quiz AP Macroeconomics

What are the 3 tools of the federal reserve

1) reserve rate (how much banks need to keep from deposits) 2) open market operations (buying and selling bonds) 3) Discount window/rate (how much interest is on the loans that the federal reserve gives out)

What limits the precision of the feds control on the money supply

1) the amount of money that a household chooses to keep in cash and not in a bank 2) the banks get to choose how much of the deposits they loan out

How does the federal reserve make sure it is not partisan towards one side or party

1) the president appoints the board of governors but the senate must approve them 2) The 7 members of the board of governors serve 14 year terms so its appointed by multiple presidents 3) The federal reserve has 12 regional banks 4) The presidents of regional banks serve as voting members on a rotating basis

how do you calculate how much money can be created based on the initial amount and reserve rate

1/rr * initial rr = reserve rate in decimal form (ex 20 is .2)

What is the Board of Governors?

7 members appointed by the us president with the advice and consent of the senate they run the federal reserve

What is the federal open market committee made of

7 members of the board of governors 5 of the 12 regional bank presidents It rotates between the 12 bank presidents but always includes the new york regional bank president

Why was money faster than barter

Because it was a common need for people with an agreed value it was easier to trade, as well as it was easier to just trade in the moment. As it is easier to trade people can specialize in their product allowing for more production allowing for the standard of living to go up.

what happens when the fed raises the reserve requirement

The money supply decreases because the banks have to keep more money which doesn't allow them to create as much money

What happens when the fed raises the discount rate

The money supply would go down because banks would have to pay back more money for their loans

How do you set up a t account

There are assets and liabilities on each side liabilities has deposits, assets have loans, and reserves

What makes the new york federal reserve regional bank so important

They are always on the FOMC New york is the traditional financial center of the US Economy

How can banks influence the money supply

They choose how much to lend out, which the more they lend out allows for more money to enter the money supply

Why are the feds considered to be a lender of last resort

They give money to people who cannot get it anywhere else for example when banks cannot meet the depositors demand then they can borrow money from the federal reserve

What is fractional reserve banking?

banks keep some money on hand and lend out the rest

What happens to the money supply when the feds buy bonds

the money supply increases because the banks will have more reserves so they could loan out more