Econ 201 - Monetary Policy

Monetary Policy

Actions by the Fed to influence interest rates & money supply

Expansionary:

lowers interest rates, increases spending

Contractionary:

raises interest rates, slows economy

Federal Reserve System:

Central Bank of the U.S.

Dual Mandate:

price stability & maximum employment

Fed Responsibilities

Monetary policy, Bank regulation, Lender of last resort, and Financial stability

Fed Chair

Jerome Powell is the..?

7 members

The board of Governors has how many members?

12

how many Regional Federal Reserve Banks are there?

FOMC

who/what conducts monetary policy; sets target range for federal funds rate?

Federal Funds Rate:

rate banks charge each other for overnight loans

Discount Rate:

Fed lends to banks

Interest on Reserve Balances (IORB)

Primary tool — Fed pays interest on bank reserves

Reservation Rate/Arbitrage:

Banks arbitrage between IORB and lending in fed funds market

Scarce Reserves System:

old system pre-2008; open market operations target supply

Ample Reserves System

post-2008; Fed uses administered rates (IORB)

Monetary Policy Tools

Primary tool: IORB. Open market operations, Discount window lending, Reserve requirements (rarely used)