Monetary Policy Study Guide

Commodity Money
Money that doubles as a commodity of some sort (gems, rice, cows).

Fiat Money
Money that is worth something because the government says it is.

Representative Money
Money that is backed or can be exchanged for gold/silver.

M1
Money that can be spent immediately.

M2
All M1, and all moneys in saving accounts or certificates of deposit.

Discount Rate
Interest rate the Fed charges on loans to member banks.

Federal Funds Rate
Interest rate that banks charge each other on loans.

Prime Rate
Rate of interest that banks charge on loans to customers.

Monetary Policy
Policy that involves change the rate of growth of the money supply in circulation in order to affect the cost and availability of credit. Controlling the supply and price of money.

The Fed
The Federal Reserve System

The Fed’s Duel Mandate
To maximize employment and maintain stable prices.

Reserve Requirements
Percentage of checking deposits Fed requires banks to hold as reserves.

Open Market Operations
The Fed buying and selling existing treasury securities on the open market.

FOMC (Federal Open Market Committee)
Main policymaking body of the Federal Reserve System.