Economy Chapter 16
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Board of Governors
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7 member body overseas federal reserve
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Federal Reserve Districts
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12 banking districts created by federal reserve act
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FAC
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research arm of federal reserve
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FOMC
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federal reserve committee that makes key decisions about interest rate and money supply
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What does monetary policy mean?
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actions the federal reserve takes to influence the economy
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Why does the federal reserve system have a high degree of political independence?
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the system is owned by the banks
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Who appoints the members of the board of governors of the federal reserve?
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the US president
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How many federal reserve districts are there?
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12
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what banks must join the fed reserve system?
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all nationally chartered banks
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What is the subject of fed open market committee decisions?
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level of interest rates and growth of the money supply
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check clearing
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process by which banks record whose account gives up money and whose account receives money when a customer wants to write a check
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bank holding company
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a company that owns more than one bank
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federal funds rate
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interest rate banks charge each other for loans
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discount rate
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rate the fed reserve charges for loans to commerical/ financial banks
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net worth
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total assets minus total liabities
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what does a fractional reserve banking system
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one that keeps only a small part of customers deposits on hand
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who issues US paper currency?
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the district federal reserve banks
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in the united states, what does the general level of a familys income have to do with the amount of cash the family is likely to hold?
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the higher the real income, the more cash the family will hold
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what is the function of a bank examiner?
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to make sure banks are obeying laws and regulations
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open market operations
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the buying and selling of govt securities to change the supply of money
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excess reserves
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holdings greater than the legally required amount
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money multiplier
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a formula that tells how much money will be created by an initial cash deposit
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what is the required reserve ratio?
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the portion of a deposit that a bank must keep on hand
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what is the estimated value of the actual money multiplier effect in the US?
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between 2 and 3
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why does the fed rarely change the reserve requirements?
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it can be disruptive to the whole banking system
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how does the fed encourage banks to loan more money?
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by reducing the discount rate
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how does a bond sale made by the fed affect the money supply?
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sale decreases the money supply
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what is the policy used most by the fed to change the money supply?
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open market operations
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tight money policy
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monetary policy that reduces the money supply
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easy money policy
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monetary policy that increases the money supply
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inside lag
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delay in implementing monetary policy
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outside lag
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the time it takes for monetary policy to have an effect
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monetarism
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the belief that the money supply is the most important factor in macro performance
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what does monetary policy do?
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it alters the supply of money
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what effect do low interest rates have on business?
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they encourage it
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what does fiscal policy include?
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changes in govt spending and taxation
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why does monetary policy usually involve a streamlined inside lag?
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the fed open market committee can act almost immediately
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what is likely to be the best approach to a recession that is expected to turn into a expansion in a short time?
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do nothing and let the economy fix itself
