Economics - Banking & the Fed Test Review

commodity money

objects that have value in themselves as well as their value as a means of currency

representative money

paper money that is backed by something tangible, such as gold or silver

fiat money

money with no tangible backing, but is declared by the government to have worth

what is the gold standard?

a system in which a country's money is backed by gold

what is the central banking system in the United States?

the Federal Reserve System; the Fed

monetary policy

actions taken by the Federal Reserve to influence the economy

how many Fed districts are there?

12

who issues U.S. paper currency?

the district Fed banks

who issues coins?

the U.S. Mint

what does the FOMC stand for?

the Federal Open Market Committee

what is the FOMC?

-oversees open market operations
-comprised of: 7 members of Fed board and 5 Fed bank presidents

what decisions does the FOMC make?

level of interest rates and growth of money supply

what does monetary policy do?

changes the supply of money

what makes up a country's money supply?

all the money available in an economy

what is an easy monetary policy?

if the economy is experiencing a contraction, the Fed wants to stimulate the economy
-increase money supply by lowering interest rates

what is a tight monetary policy?

if the economy is experiencing rapid growth, the Fed wants to slow the rate of inflation
-decrease money supply by raising interest rates

open market transactions

the buying and selling of government securities in order to change the money supply

if the Fed sells a bond . . .

the money supply decreases

if the Fed buys a bond . . .

the money supply increases

fiscal policy

changes in government spending and taxation

interest rates

the additional amount of money due as a proportion of the principal amount of money that was borrowed

where is the Fed located?

Washington, DC