ch. 15 Federal Reserve System

Flashcard maker : Henry Smith
credit
subject to laws of supply and demand
loose money policy
want economy to speed up
tight money policy
want economy to slow down
discount rate
interest rate charged by the Fed to other banks
prime rate
interest rate charged by banks to its best business customers
check clearing
method by which a check that has been deposited in one depository institution is transferred to the depository institution on which it was written
Federal Open Market Committee
meets 8 times a year, decides how the Fed should control the money supply, made up of Board of Governors and Pres. or V.P. of 5 Fed. Reserve Banks
Board of Governors
directs operations of Federal Reserve System, supervises the 12 district Federal Reserve Banks, has 7 full-time members appointed by the Pres. approved by the Senate
to increase money supply
reduce reserve requirements, reduce discount rates for borrowing reserves, buy government securities on the open market
to decrease money supply
increase reserve requirements, raise discount rate for borrowing reserves, sell government securities in the open market
member banks
commercial banks that are members of, and hold stock in the Fed.
bank holding companies
corporations that own one or more banks
currency
paper component of the money supply
coins
metallic forms of money
monetary policy
expansion or contraction of the money supply in order to influence the cost and the availability of credit
fractional reserve system
requires banks and other depository institutions to keep a fraction of their deposits in the form of legal reserves
legal reserves
consist of coins and currency that depository institutions hold in their vaults, plus deposits with Federal Reserve district banks
reserve requirement
rule stating that a percentage of every deposit be set aside as legal reserves
excess reserves
legal reserves in excess of the reserve requirement
liabilities
debts and obligations to others
assets
properties, possessions, and claims on others
balance sheet
condensed statement showing all assets and liabilities at a given time
net worth
excess of assets over liabilities, which is a measure of the value of a business
time deposits
interest-bearing deposits that cannot be withdrawn by check
member bank reserve
deposit a member bank keeps at the Fed to satisfy reserve requirements
easy money policy
Fed allows the money supply to grow and interest rates to fall, which normally stimulates the economy
tight money policy
Fed restricts the growth of the money supply, which drives interest rates up
open market operations
buying and selling of government securities in financial markets
margin requirements
minimum deposits left with a stockbroker to be used as down payments to buy other securities
monetize the debt
create enough extra money to offset the expansion of the money supply, making inflation worse
real rate of interest
the market rate of interest minus the rate of inflation
selective credit controls
credit rules pertaining to loans for specific commodities or purposes
regulation z
provision extending truth-in-lending disclosures to consumers
deregulation
relaxation or removal of government regulations on business activities
aggregate supply
total value of goods and services that all firms would produce in a specific period of time at various price levels
supply-side economics
economic policies designed to increase aggregate supply or shift the aggregate supply curve to the right
keynesian economics
government spending and taxation policies suggested by John Maynard Keynes to stimulate the economy
stagflation
combination of stagnant economic growth and inflation
liquidity
potential for being readily convertible into cash or other financial assets
creditor
person or institution to whom money is owed
M1
money supply components conforming to money’s role as medium of exchange; such as coins and currency
M2
money supply components conforming to money’s role as a store of value; M1, savings deposits, time deposits
monetarism
school of thought stressing the importance of stable monetary growth to control inflation and stimulate long-term economic growth
council of economic advisers
three member group that devises strategies and advises the president of the united states on economic matters
misery index
unofficial statistic that is the sum of monthly inflation and the unemployment rate

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