Studied by 0 people
Looks like no one added any tags here yet for you.
federal reserve system
institutions that oversees and regulates the banking system and the money supply, under executive branch
what is money
set of assets in an economy that people regularly use to buy goods and services from other ppl
three functions of money
medium of exchange: asset that people use to trade for goods and services
unit of account: a measurement of a set price to make a calculation
store of value: means of holding purchasing power over time
liquidity: the ease that an asset can be made into cash
liquidity
the ease that an asset can be made into cash
store of value
means of holding purchasing power over time
unit of account
a measurement of a set price to make a calculation
medium of exchnage
asset that people use to trade for goods and services
two kinds of money
commodity money: a good used as a medium of exchange that has intrinsic value in other uses, commodity backed money: gold, oil, corn, lithium, cigarettes
fiat money: a medium of exchange whose value derives entirely from it official status as a means of payment ex: pound, dollar
fiat money
a medium of exchange whose value derives entirely from it official status as a means of payment ex: pound dollar
commodity backed money
gold, oil, corn, lithium, cigarettes
commodity money
a good used as a medium of exchange that has intrinsic value in other uses
how banks make money:
a balence sheet: assests and liabilities and net worth
your deposit money goes in as liabilities
under assests is reserves bc of the money from teh deposits
fractional reserve banking
fraction of checkable deposits are backed up byresrves of currency in banks vaults in a central bank, federal reserve establishes reserve requirements
reserve ratio formula
commercial required reserves/checkable deposit liabilities
money multiplier
the amount of money the banking system generates with each dollar of reserves
money multiplier ratio
1/R or 1/RR
maximum amount of money created formula
excess reserves x money multiplier
federal reserve system
central bank, institution that oversees and regulates the banking system and money supply,
feds organization
chairman: jerome powell, works with federal open market committe, job is to monetary policy
monetary policy
the central banks use of changes in the quantity of money or interest rate to stabilize the economy
expansionary monetary policy
increases the money supply, quantitative easing, fed lowers interest rates to increase money supply
contractionary monetary policy
decrease in money supply, quantitative tightening, increasing interest rates, makes money harder to get
process of FEDs announcment
fed announces what they gonna do with interest rates
affects how businesses apply interest rates for all financial conditions
influences consumers and producers spending/investing decisions
attemps to stabilize prices and full employment
monetary policy before 2008, from least to most popular
reserve requirment
discount rate
open market operations
after 2008
open market operations
discount rates*
interest on reserve *
*administered interest rates
if economy is in ressecion…
federal reserve lowers requirment to increase money supply
during inflation…
raise reserve requirment to decrease money supply
interest on reserves
is when federal reservs pay interest to the banks, they want interest to be low
fed lends to thr banks
theres interest,
when banks borror from other banks
federal funds rate
open market operations
when the fed sells bonds
when the fed sytem sells bonds reserves in the banking system decrease
and they apy u interest and u can cash it out late r
bond
ceritficate of debt
