Federal Reserve and Monetary Policy

Federal Reserve

This government entity is the nation's central bank, issues currency, and controls monetary policy.

increase discount rate

To combat inflation, this is the action the Fed will take on the discount rate.

increase the reserve requirement

To combat inflation, this is the action the Fed will take on the reserve requirement.

sell bonds

To combat inflation, this is the open market operation the Fed will use.

Sell securities/bonds, raise the discount rate, raise the reserve requirement

To combat inflation, what options does the Fed have with its 3 primary tools?

decrease discount rate

To combat unemployment, this is the action the Fed will take on the discount rate.

decrease the reserve requirement

To combat unemployment, this is the action the Fed will take on the reserve requirement.

buy bonds

To combat unemployment, this is the open market operation the Fed will use.

Buy securities/bonds; lower the discount rate, lower the reserve requirement

To combat unemployment, what options does the Fed have with its 3 primary tools?

tax increases/decreases spending increases/decreases or combo

What actions are taken as part of FISCAL POLICY?

a measure of value/standard of value/unit of account

When you are estimating your total expenses for college next year, you are using money as _____.

Congress and the president

Who is charge of FISCAL POLICY?

Expansionary- loose money- monetary policy

buy bonds, low interest rate, increase money supply

discount rate

interest rate charged by the Fed to banks

Federal Board of Governors

oversees banks and determines monetary policy

FOMC- or the Board of Governors

policy making body of the Fed

Main tools of monetary policy

reserve requirement, open market operations, discount rate

Contractionary-tight money- monetary policy

sell bonds, raise interest rate, decrease money supply

Prime Rate

this is the interest rate that banks charge their best customers.

open market operations

The Fed buys and sells bonds on the open market; it is the tool the Fed uses MOST often.

reserve requirement

The percentage of deposits that the Fed requires banks to keep on hand to cover customer withdrawals; it is the tool used LEAST often; major deterrent to bank panics.

Jerome Powell

Chairman of the Federal Reserve

commodity money

It is money that has another use , such as cigarettes used for transactions in prison.