Federal Reserve Structure & Policy

Fractional-reserve system

Banks hold only a fraction of deposits as reserves

Open-Market Operations

Buying/selling government securities to control money supply

Tight-Money Policy

Contractionary policy raising interest rates to slow economy

Easy-Money Policy

Expansionary policy lowering interest rates to boost economy

Discretionary Spending

Gov't actions to correct economic instability, authorized annually

Fiscal Policy

Gov't use of taxes and spending to influence the economy

Federal Open Market Committee (FOMC)

Group monitoring money supply, inflation, and interest rates

Central Bank

Institution overseeing banking system and regulating money quantity

Discount Rate/Overnight Rate

Interest rate Fed charges member banks for loans

Commodity Money

Items with intrinsic value used as money

Chairman of the Fed

Leader of the Board of Governors of the Federal Reserve

Federal Reserve Act of 1913

Legislation creating the Federal Reserve as the central bank of the U.S.

Medium of Exchange

Money facilitating goods and services exchange

Store of Value

Money retaining value over time, exchangeable for goods/services

Standard of Value

Money used to express costs and compare worths of goods

Fiat Money

Money valuable due to government declaration

Representative Money

Paper money exchangeable for something valuable

Monetary Policy

Policy influencing money supply to impact credit availability and cost

Reserve Ratio Requirements

Regulations on minimum reserves banks must hold against deposits

Mandatory Spending

Spending required by current law, including entitlements