Prentice Hall Economics Chapter 16 Sections 1-3 Vocabulary

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monetary policy

the actions that the Federal Reserve System takes to influence the level of real GDP and the rate of inflation in the economy

reserves

deposits that a bank keeps readily available as opposed to lending them out

reserve requirements

the amount of reserves that banks are required to keep on hand

check clearing

the process by which banks record whose account receives money when a costumer writes a check

bank holding company

a company that owns more than one bank

federal funds rate

the interest rate that banks charge each other for loans

discount rate

the interest rate that the Federal Reserve charges commercial banks for loans

money creation

the process by which money enters into circulation

required reserve ratio

the fraction of deposits that banks are required to keep in reserve

money multiplier formula

a formula (initial cash deposit X 1 / RRR) used to determine how much new money can be created with each demand deposit and added to the money supply

excess reserves

bank reserves greater than the amount required by the Federal Reserve

prime rate

the rate of interest that banks charge on short-term loans to their best customers

open market operations

the buying and selling of government securities in order to alter the supply of money

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