Economics Chapter 17
how many branches does the federal reserve have?
24
bank holding companies
companies that control one or more banks
member banks
include all nationally chartered banks and money state chartered banks. they are stockholders in their district bank and help elect districts board of directors
if the FED increases money supply, what happens to the interest rate? what happens to loans? what happens to the economy?
lowers; loans are cheaper; economy expands
How many district banks does the federal reserve have?
12
How many board of governors are there and for how many terms do they serve?
7; 14 years
federal reserve system
US central banking system
what was making the financial crisis worse than usual?
a lack of confidence in the credit markets
monetary policy
actions taken by the central bank to manage interest rates and the money supply in pursuit of macroeconomics
When the economy slows, what does the FED adopt and why? what happens to interest rate, investments, and the economy?
an easy money policy to increase the money supply; interest rates decrease, investments increase, economy expands (expansionary money policy)
list all 12 district banks in order
boston new york philidelphia cleveland richmond atlanta chicago st. louis minneapolis kansas city dallas san francisco
what can happen if the FED fights inflation too soon or too vigorously?
can push the economy into inflation
how do changes in the interest rate affect the demand for money?
changes in interest rate cause movements along demand curve; as interest rates increase, demand for money decreases
what do the 3 macroeconomic goals of the fed promote?
consistent economic growth
what were some of the problems experienced during the great recession of 2007-2009?
crisis in housing market affected US lending institutions because mortgage holders were unable to make their payments. therefore banks didn't have as much money to lend
What were the FED's initial efforts to address the financial crisis?
cut federal funds rate
if a bank must keep a higher percentage of deposits on hand, what happens to the money supply?
decreases
tight money policy
decreases money supply
foreign reserves
deposits of foreign currencies held by central banks
collateral
for a loan is an asset that must be forfeited to the lender if the loan is not paid back
what 3 macroeconomic goals is the fed interested in pursuing?
full employment price stability moderate long term interest rates
after the great depression what were some reforms passed to expand the role of the FED
glass-steagall act, open market operations, examine books of any bank holding company, regulating banks
what are 4 functions the federal reserve performs for the federal government?
holds all treasury accounts, takes all our deposits, sell and redeem securities (bonds), circulates new money to commercial banks
federal reserve banks
implement federal reserve policies and provide services to member banks and federal government agencies
easy money policy
increases money supply
bailout
infusion of money usually in the form of loans or stock purchases to keep a firm from failing
in the money market, what is the price for money?
interest
what is the largest source of federal income?
interest
federal funds rate
interest rate that commercial banks charge one another for short term loans
Who is in charge of the FED?
jerome powell
board of governors
made up of members of the federal open market committee and manages the operations of the federal reserve
The federal reserve is the nations central bank that acts to do what two things?
maintain the safety of the banking system and the stability of the economy
what is the most important function of the board of governors?
monetary policies
what is one of the tools available to help stabilize the economy?
monetary policy
what are the fed's 4 main areas of responsibility?
monetary policy regulating the banks maintaining economic stability providing financial services to the fed
out of the 3 traditional tools of the fed, which one is used the most?
open market operations
what are the 3 traditional tools of the FED?
open market operations discount rate reserve requirements
check clearing
process of removing money from the bank account of the person who wrote the check and delivering it to the account of the check's recipient
what do the federal reserve banks do?
provide services to member banks and federal government agencies federal reserve policies
how does the FED use the discount rate to influence banks' activities?
raising or lowering short term loans to control price
fiscal agent
sells, redeems, and pays interest on government securities
why did congress create a central bank as an independent body within the federal government?
so politics do not sway the fed's policies
what is a reserve requirement?
specify the percentage of demand deposits that banks must keep on hand and not lend out
what new programs did the FED try?
term auction facility, term securities lending facility, primary dealer credit facility
who prints the money?
the US treasury
inflation targeting
the central bank sets a target rate or range of inflation for some time in the future and develops monetary policy with that goal in mind
federal open market committee
the group within the federal reserve that creates monetary policy
discount rate
the interest rate that the FED charges financial institutions for short term loans
what is the opportunity cost of holding money in your pocket?
the interest rate you could earn if you invested it instead
What happens when the FED cut the federal funds rate?
the interest rates are lowered that financial institutions had to pay the FED for short term loans
what were the mixed results of the new programs that the FED tried?
the lack of credit was affecting the ability of companies to finance regular business transactions. businesses were laying off workers and cutting back on production, which only deepened the recession
what do the board of governors do?
they manage the operations of the fed
ACH (automated clearing house) transfers
transfers between payers and payees accounts carried out without the use of checks on a secure electronic funds-transfer network
usual or unusual power of the FED: establishing the term auction facility
unusual
usual or unusual power of the FED: intervention in the home loan industry by allowing fannie may, freddie mac, and later ginnie mae to borrow money from the fed
unusual
usual or unusual power of the FED: making one year loans to financial institutions that give car loans, student loans, credit card loans through the term asset backed securities loans facility
unusual
usual or unusual power of the FED: operating the discount window at the fed
unusual
usual or unusual power of the FED: rescuing firms that are too big to fail
unusual
usual or unusual power of the FED: setting up the primary dealers credit facility to increase the total supply of financial reserves in the banking system
unusual
usual or unusual power of the FED: buying and selling bonds through the federal open market committee to affect the federal funds rate
usual
usual or unusual power of the FED: lowering the reserve requirement on bank deposits
usual
