Term
Functions of the Federal Reserve |
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Definition
- controlling the money supply
- supply the economy with paper money
- hold bank reserves
- provide check-clearing services
- supervise member banks
- serve as a lender of last resort
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Term
How the Fed Controls the Money Supply
(3 Ways) |
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Definition
- change the reserve requirement
- open market operations (gvmt bonds)
- change the discount rate (influences interest rate)
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Term
What Makes Up the Money Supply
(4 Things) |
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Definition
- currency
- checking accounts
- traveler's checks
- savings accounts (if you are able to w/draw from them)
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Term
What Doesn't Count in the Money Supply
(2 Things) |
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Definition
- credit cards
- saving accounts if you are unable to w/draw from them
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Term
When the Money Supply ↑
(3 Things) |
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Definition
- interest rates ↑
- borrowing and spending ↑
- all prices ↑ (because it leads to inflation)
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Term
When the Money Supply ↓
(3 Things) |
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Definition
- interest rates ↑
- borrowing and spending ↓
- prices ↓ (because it leads to a recession and decline in business)
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Term
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Definition
| deliberate control of the money supply |
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Term
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Definition
| the interest rate the Fed charges a member bank for a loan |
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Term
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Definition
| decline in business activity |
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Term
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Definition
| increase in price level; average cost of goods is higher |
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Term
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Definition
| a bank's reserve account with the Fed plus the cash in the bank's vault |
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Term
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Definition
| the amount a bank must hold against its deposits as mandated by the Fed |
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Term
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Definition
| difference between total reserves and required reserves; used to make loans or sent to the bank's account at the Fed |
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Term
How does the Fed assist banks in time of high withdrawals?
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Definition
| They hold the bank's reserves so that if a lot of people want their money all at the same time, the bank can pull from their account at the reserve. If that isn't enough, the Fed will lend the bank the money like a loan |
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Term
| What happens if the Fed prints money at will? |
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Definition
| inflation; the money is not worth as much |
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Term
| Change in money supply formula |
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Definition
| (1÷reserve requirement) x change in reserves of the first bank (aka money deposited) |
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