24 terms

Economic Principles and Practices chapter 15

The Fed and Monetary Policy
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monetary policy
the expansion and/or contraction of the money supply
fractional reserve system
requirement that banks and other depository institutions keep a fraction of their deposits
legal reserves
coins and currency that depository institutions hold in their vaults
reserve requirement
a rule stating that a percentage of every deposit must be set aside as legal reserves
excess reserves
legal reserves in excess of the reserve requirement; excess reserves are the funds the bank can lend to others who may want a loan
liabilities
debts and financial obligations to others
assets
properties, possessions and financial claims on others
balance sheet
a condensed statement showing assets and liabilities; the balance sheet also reflects net worth
net worth
excess of assets over liabilities
liquidity
an asset's potential for being converted into cash in a very short time
savings account
interest-bearing bank account that cannot be withdrawn by check
time deposit
interest-bearing bank account that cannot be withdrawn, prior notice
easy money policy
federal reserve policy that allows the money supply to grow
tight money policy
federal reserve policy that restricts the growth of the money supply
open market operations
the buying and selling of government securities in financial markets
discount rate
interest rate that the federal reserve charges on loans to financial markets
margin requirements
minimum deposits left with a stockbroker to be used as down payments to buy other securities
moral suasion
the use of persuasion such as announcements, press release, articles in newspaper and magazines
bank holding company
corporations that own one or more banks
member bank
a bank that is a member of the Federal Reserve System
monetizing the debt
process of creating enough additional money to offset federal borrowing so that interest rates remain unchanged
prime rate
Interest rate banks charge their best and most reliable customers
quantity theory of money
a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
real rate of interest
the market rate of interest minus the rate of inflation
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