ECON CH 14
114 test answers
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Characteristics of a good medium of exchange include:
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Portable, divisible, and stable in value NOT ABUNDANT IN SUPPLY *****
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Each of the seven full time members of the Fed's Board of Governors
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Is appointed by the president with approval by the senate for a 14-year term *****
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The group that meets about 8 times a year to decide the course of action that the Fed should take to control the money supply is the
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Federal Open Market Committee *****
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There are _____ Federal Reserve District Banks located in the United States
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12 *****
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Who is the current chairman of the Federal Reserve Board of Governors?
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Janet Yellen *****
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District 11 Federal Reserve Bank is located in which U.S. city?
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Dallas *****
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The Fed might raise the discount rate in order to _____
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discourage borrowing *****
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This is true concerning the Fed's open-market operations
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Buying and selling government securities, or open market operations, is a monetary policy tool used by the Fed to control the money supply *****
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The _____ is the interest the Fed charges on loans to financial institutions such as banks and is one tool of monetary policy
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Discount Rate *****
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This statement is false
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To control the money supply the Fed has most often used adjustments to the reserve requirement. it's their main tool of monetary policy! *****
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Low interest rates, high employment, and a growing money supply, are characteristics of this type of monetary policy
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Easy Money *****
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The three main tools of monetary policy are:
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-Discount Rate -OMO's -Reserve Requirement *****
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If the reserve requirement is 20% and you deposit $100 in the bank, what are the excess reserves from the deposit?
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$80 *****
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Which district bank president always serves as a voting member on the FOMC?
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NY *****
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Where does the FOMC meet to discuss monetary policy at least 8 times per year?
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Washington DC *****
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In 1913, which U.S. president signed the Federal Reserve System into law as the nation's first true central bank?
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Wilson *****
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Credit cards are accepted as cash by most stores
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True *****
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Most credit cards have a credit limit
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True *****
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If I pay my credit card in full by the due date, I will not have to pay any interest
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True *****
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You should never pay the full amount of your credit card, only the minimum required by the company
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False *****
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Credit cards offer rewards programs like cash back or gift cards for making purchases on them
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True *****
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any substance that functions as a medium of exchange, a medium of value, and a store of value is ______
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Money
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money is generally accepted as payments for goods and services. as society became more complex, trading goods for other goods and services became more difficult
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Medium of Exchange
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money expresses worth in terms that most understand: consumers trade using money as common denominator (price tag)
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Measure of Value
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goods and/or services can be easily converted to money, which can easily be stored until a later time
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Store of Value
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money that has an alternative use as a commodity (compressed brick tea leaves)
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Commodity Money
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money by government decree (coins used in Asia minor in 7th century BC
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fiat money
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the use of money became accepted because it served in everyones best interest
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Social Convention
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money with an alternative use as a commodity (gun powder, musket balls, corn, hemp TOBACCO)
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Commodity Money
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form of currency the Warraganset Native Americans mad out of white conch and black mussel shells
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Wampum
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states allowed individuals to print their own money
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Paper Currency
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money in the form of coins usually made from silver or gold
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Specie
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ingots or bars of precious metals
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Bullion
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standard unit of currency as a country's money system
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Monetary Unit
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Portable (easily transferred), Durable (ability to last), Divisible (can be broken into units), Stable (available but limited)
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Characteristics of money
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a bank that receives its charter to operate from a state government
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State Bank
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privately owned an operated, larger than state banks, Federal charter rather than state charters
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The 1812 Bank of the United States (exception to the state bank)
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printed paper currency
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Money Supply
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banks that over-printed their currencies; their money was not backed up by gold and silver reserves
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Wildcat Banks
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each bank issued different currencies, temptation to issue too many notes (print more money than they have)
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Currency Problems
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1,600 banks issuing 10,000 kinds of paper money, and the issued money was not all backed up by gold and silver
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End of the Civil War
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one currency dominated during the years 1861-1900 and it became the main monetary standard of the time congress printed money to finance the civil war
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Greenback Standard
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congress authorized printing of $60 mofnotes called demand notes (signed by a clerk) in what year?
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1861
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flat currency that must be accepted in payment for debts
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Legal Tender
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both sides of demand notes were printed with green ink to distinguish them from state notes circulation
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Greenbacks
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congress passed the Legal Tender Act which gave the government right to print $150 million with no gold or silver backing
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United States Notes
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As war dragged on, number of greenbacks increased, people feared that currency might become worthless and avoided greenbacks
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National Currency
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consists of financially sound and rigorously inspected private banks
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National Banking System (NBS)
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banks that received charters from national government, gave people confidence in system and currency
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National Banks
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uniform in appearance and backed by U.S. government bonds
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National Bank Notes/Currency (gold certificates,silver certificates,treasury coin notes)
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monetary standard under which the basic unit of currency is equivalent to, and can be exchanged for, a set amount of gold could exchange all types of national currency for gold at the treasury whenever they wanted to
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The Gold Standard Act of 1900
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security of converting to gold prevents government from printing too much paper
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Advantages of the Gold Standard
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growing economy needs growing money supply which leads to growing gold stock converting currency to gold which leads to draining the government of gold reserves
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Disadvantages of Gold Standard
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U.S. and its money standard is inconvertible because it cannot be converted into gold or silver by its U.S. citezens
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Inconvertible Fiat Money Standard (1934-Present)
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it is fiat money standard because the government decree declared dollars legal money, giving it _______
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Intrinsic Value
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12 banks Dallas is home base Headquarters are in DC
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Structure of the Fed
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banks hat belong to the Federal Reserve System
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Member Banks
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contribute financial capital and in return receive stock in Fed. pays individuals
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Ownership
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commercial banks own fed not federal government itself
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Private
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district presidents determine makeup of boards
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Elect directors for 12 district banks
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appoints 7 members of fed Board of Governors to 14 year terms
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President of the United States
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Washington DC
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The board of Governors work out of here
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direct and control the activities of the Fed
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role of the Board of Governors
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SETS general policies for member banks to follow REGULATES operations of state chartered members commercial banks CONDUCTS monetary policy REPORTS to congress 1/year and monthly bulletins
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The Board of Governors do this for the Fed
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MAKES decisions about growth of money supply CONTROLS interest rate level
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Federal Open Market Committee (FOMC)
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7 members of the BoG 5 district reserve bank presents ( 1 year rotating terms)
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Make-up of the FOMC
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meets 8 times/year in DC discusses country's economy cost and availability of credit decisions are secret and released several weeks after meetings
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FOMC Roles
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offers advice and feedback on the overall health of the economy to Federal Board
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12 district banks
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12 members appointed by member banks in region but has little impact on the daily operations of the Fed
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Federal Advisory Council (FAC)
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Fed is responsible for monitoring the reserves of its state chartered member banks while other regulatory agencies monitor reserves of non member makes and other depository of the fed
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States Member Bank Supervision
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banks use them to clear checks fed uses them to control the size of money supply
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State Member Banks
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-fed has broad legislative authority over ban holding companies- a form of corporation that owns one or more banks -attempted to evade banks restrictions put on banks during great depression bc they weren't banks but corporate structure -fed regulates holding company
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Holding Companies
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in 1993 foreign banks operated more than 500 branches and agencies in the U.S.
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International Operations
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Controls 25% of all banking assets in the U.S.
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International Operations
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branches are examined annually power to terminate domestic operations
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Fed's authority over International Operations
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Fed authorizes and supervises international operations of U.S. member bans and holding companies which is _____ branckes
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800
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Fed Comptroller of Currency FDIC
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Bank mergers requires approval of the appropriate federal banking authority
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clearing checks process that makes extensive use of reserves in the banking systems
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major service the fed performs in check clearing
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require sellers to complete and make accurate disclosers to people who buy on credit
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Truth-in-Lending Laws
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extended to millions of individuals by corporations, retail stores, auto mobile decriers, banks, and lending institutions
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Regulation-z-truth-in-lending disclosers
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made up of the federal reserve notes--- fiat paper money issued by federal reserve banks and printed at the bureau of engraving and printing
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Paper component of the money supply
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stored in fed's district banks and sent to member banks upon request
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Currency
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metallic forms of money, pennies, nickels, and dimes, made at the bureau of the mint and sent to district banks for storage
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Coins
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minimum deposits left with a stockbroker to be used as a partial payment on other securities
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Margin Requirements
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an investor has to put up at least half the money needed to buy eligible stocks and bonds has been set as high as 80% left to feds' discretion
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Margin Requirement setting a 50% minimum for stocks and bonds
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monitors stock market activity and publishes a list of stocks that are eligible for margin loans
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Margin Requirements
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involves controlling the expansion and/or contraction of the supply to influence the cost and availability of credit, thereby influencing economic activity
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Monetary Policy
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RESERVE REQUIREMENT OPEN MARKET OPERATIONS DISCOUNT RATE MORAL SUASION SELECTIVE CREDIT CONTROLS
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5 tools of Monetary Policy
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the fed allows the money supply (MS) to grow and interest rates (IR) to fall which normally stimulates the economy
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Easy Money
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the fed restricts the growth of the MS which drives IR up
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Tight Money
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spend more, increase growth
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Low interest rates
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spend less, slows growth
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High interest rates
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requires banks and other depository institutions to keep only a fraction of their deposits in the form of reserves
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Fractional Reserve System
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rule stating that a percent of every deposit be set aside as legal reserves
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Reserve Requirement
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coins, currency, and deposits used to fulfill the reserve requirement
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Legal Reserves
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reserves in excess of reserve requirement can be lent to others who may want a loan
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Excess Reserves
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more money loaned, MS grows
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when the fed lowers the fed requirement
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less money loaned, MS shrinks
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when the fed raises the reserve requirement
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buying and selling of government securities in financial markets
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Open Market Operations (OMOs)
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interest rates, monetary growth, trading desk
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FOMC conducts OMOs to impact
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physical location at the feds NY district bank where the buying and selling actually takes place
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Trading Desk
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adds excess reserves to system, MS grows
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when the fed buys bonds
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contracts excess reserves from system, MS shrinks
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when the fed sells bonds
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the interest rate the fed charges on the loans to other financial institutions
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Federal Funds Rate unexpected drop in MBRs and seasonal demand for loans
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tellers window at fed that depository institutions used to borrow MBRs
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Discount Window
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property or other security used to guarantee payment of loann
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Collateral
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allows more borrowing, MS grows
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when the fed lowers the discount rate
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discourages borrowing, MS shrinks
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when the fed raises the discount rate
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the lowest rate of interest commercial banks charge their best customers; banks usually adjust their prime rate up or down whenever the fed changes the discount rate
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Prime Rate
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rule pertaining to loans for specific commodities and purpose (rarely used)
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Selective credit controls (minimum down payments on cars during WWII)
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