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23 terms

Money, Banking and The Federal Reserve

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The Federal Reserve
U.S. Central Bank; Purpose: to control the supply of credit and money to achieve stable prices, full employment, economic growth.
Open Market Operations
The buying and selling of Treasury Securities (Bonds) by the Federal Reserve in order to control the money supply
Reserve Requirement
the percentage of deposits that banking institutions must hold in reserve
Discount Rate
interest rate that the Fed charges for loans to member banks
Federal Funds Rate
the interest rate at which banks make overnight loans to one another
Monetary Policy
the actions the Federal Reserve takes to influence the level of real GDP and the rate of inflation in the economy
Expansionary Monetary Policy
Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy = Buying Bonds, Lowering the Discount Rate and Reserve Requirement
Contractionary Monetary Policy
Contracting the supply of money and increasing interest rates to decrease Aggregate Demand and ultimately decrease inflation = Selling Bonds, Raising the Discount Rate and Reserve Requirement
M1
a measure of the money supply
Money Multiplier
1 / reserve requirement: the multiple by which the money supply will change because of a change in bank reserves
The Three Functions of Money
1. medium of exchange
2.unit of account
3.store of value
Ben Bernanke
Current chairman of the Federal Reserve System. Replaced Alan Greenspan in 2006.
Fiscal Policy
an attempt to use taxes and expenditures to affect the economy
National Debt
the total amount owed by the federal government
Deficit
What occurs when the government in one year spends more money than it takes in from taxes.
Regressive Taxes
tax in which people with lower incomes pay a larger portion of their income
Proportional Taxes
taxes that require all income groups to pay the same percentage of their income in taxes
Progressive Taxes
A tax rate that increases as the amount of ones income increases
Economic Growth
increase in a nation's total output of goods and services over time
Aggregate Demand
the demand for all goods and services by all households, business, governments, and foreigners
Aggregate Supply
The total amount of goods and services in the economy available at all possible price levels.
Positive Externality
a benefit received by someone who had nothing to do with the activity that generated the benefit
Negative Externality
the harm, cost, or inconvenience suffered by a third party because of actions by others