Federal Reserve Institutions and Monetary Policy

This set of vocabulary flashcards covers the institutions of the Federal Reserve, tools of monetary policy, banking interest rates, and the mechanics of international trade as discussed in the lecture.

Open Market Operations

The practice of the Fed buying or selling government securities, such as bonds, from banks and members of the public to manipulate the money supply.

Quantitative Easing

A technical term for making it easy for the quantity or volume of money to increase in the economy to help exit a recessionary period.

Restrictive Monetary Policy

A policy that makes it harder for people to access money by selling bonds to reduce the money supply during times of inflation.

Federal Reserve Note

The serialized physical cash used in the economy, such as a $\$10$ or $\$100$ bill, which is recorded as a liability on the Fed's balance sheet before it is released.

US Treasury Securities

Assets owned by the Fed that include bonds, treasury notes, and treasury bills, totaling approximately $\$2$ trillion.

Discount Rate

The lowest interest rate available, which the Federal Reserve charges to banks for borrowing money.

Discount Window

A specific place or mechanism at the Fed where banks go to borrow money as a lender of last resort.

Lender of Last Resort

A function of the Federal Reserve where it provides financial assistance to banks in trouble through the discount window.

Federal Funds Rate

The interest rate that banks charge each other for borrowing money amongst themselves, which typically moves in the same direction as the discount rate.

Reserve Ratio

The percentage of deposits that banks are required to keep; it has an inverse relationship with the money multiplier.

Money Multiplier

A factor that calculates how much money is generated in the system; for example, a $5\%$ reserve ratio yields a higher multiplier than a $20\%$ ratio.

Identification Lag

Also called internal lag, this is the delay between when an economic problem starts and when the Fed finds out and takes action.

Effect Lag

Also called external lag, this is the delay between when the Fed takes a policy action and when the economic results are actually seen.

Comparative Advantage

An economic principle that explains why a country like the United States buys certain goods from international partners while selling others.

General Electric (GE)

A US company that produces light bulbs, power stations, railroad equipment, and aircraft engines, making significant revenue from international markets.