Macroeconomics
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Created by:
1502meyerj on February 26, 2012
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The Federal Reserve and the Banking System
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28 terms
Terms | Definitions |
|---|---|
 1. medium of exchange2. unit of account 3.store of value | What are the functions of money? |
| 1. currency (coins and paper money) 2. all checkable deposits | Money Definition M1 |
| M1 + 1. savings deposits (MMDA money market deposit amount) 2. small-denominated time deposits 3. money market mutual funds | Money Definition M2 |
| US central bank consisting of Board of Governors and 12 Federal Reserve banks | The Federal Reserve |
| control the money supply | What is the main goal of the Fed? |
| Federal Open Market Committee- aids the Board of Governors in conducting monetary policy | What is the FOMC? |
| 1. the seven members of the Board of Governors 2. the president of the New York Federal Reserve Bank 3. four of the remaining presidents of the Federal Reserve Banks on a 1-year rotating basis | Who does the FOMC consist of? |
| a monetary unit for measuring and comparing the relative values of goods | Money serves as a unit of account, meaning that: |
| are a risk of the fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently | Bank panics: |
| federal funds rate | Overnight loans from one bank to another for reserve purposes entail an interest rate called the: |
| altering the reserves of commercial banks, primarily through sales and purchases of government bonds | How do the Feds primarily regulate the money supply? |
| discount rate | Overnight loans from a Federal Reserve Bank to a commercial bank for reserve purposes entail an interest rate called the: |
| it increases | If the Feds buy government bonds, what happens to the money supply? |
| it decreases | If the Feds sell government bonds, what happens to the money supply? |
| the downturn in the economy could not have been predicted | Why do cyclical deficits occur in an economy? |
| true | Cyclical deficits and surpluses are a natural part of the economy. True or false |
| false. implies a lack of understanding about the economy and it's resources | Structural deficits are a natural part of the economy. True or false |
| programs financed by tge Fed to buy up bank dept at a fixed rate | What is quantitative easing? |
| 1. safekeeping money 2. loan out remaining checkable reserves | What is the role of banks in the economy? |
| (1/RR%) x loan amount | What is the formula for the maximum impact that a loan can have on an economy? |
| 1. all deposits must go straight to bank without spending 2. every bank in the chain must hold only the RR% & loan out the rest | Conditions necessary to achieve maximum change in the money supply |
| yes, it is easy to count | Is money a stock variable? |
| based on liquidity | How are variables in the money supply categorized? |
| 1. transactions motive 2. speculative motive | What are the two reasons people demand money? |
| 1. GDP (Y) 2. Prices | 2 determinants of money supply: |
| it increases | When price or income rises, MD shifts out. What affect does this have on the interest rate? |
| 1. choose to increase MS by buying bonds to maintain a constant increase rate or 2. allow the interest rate to rise | To accomodate the increase in MD, the Fed can: |
| AE & what is produced (goods market) | The money market equals: |
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