Ch. 13 The Monetary Policy

Prior to October 2008, the Fed did not pay interest on ______

reserves (deposits held for the bank by the Fed)

Required Reserve Ratio:

minimum required amount fo reserves to hold for transaction deposits

Post 2008:

Fed pays interest on reserves

Why does the Fed now pay interest on reserves post-2008?

Banks began to hold reserves far in excess of what was required.

March 2020

No minimum required reserve, technically no excess reserves

The required reserve is ______ after March 2020

set to zero, so there is no RR but it is still there if needed.

All banks seek to be __________

fully loaned up ER=0

Alexander Hamilton

1st treasurer, wanted to create a central bank like england

Andrew Jackson

didn’t renew 2nd bank of US, put money in pet banks instead

coinage act 1792

established the us dollar as the countrys standard unit of money and created the us mint

Where was the first state bank located?

Philadelphia

After the charter was not renewed on 1836 what happened?

US when into an era for free banking

National Banking Act 1863

enabled federally charted banks, issuing standardized US bank notes and imposed tax on the non-us bank notes

Federal Reserve Act 1913

act to provide for the establishment of federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervison of banking in the US and for other purposes

commercial paper

short-term, unsecured promissory note issued by corporations

Federal Reserve does what

lender of last resort, bank supervison, elastic currency

Board of Governors Structure for Fed Reserve

7 members appointed by president (for 14 yr terms), one member serves as the chair (4 yr term),

12 District Banks

issue new currency, maintain the treasury account and process electronic pmts, hold the deposits of the banks in their district, serve as lender of last resort

Federal Open Market Committee FOMC

7 members of BOG, 12 district presidents,

Voting memebers of the FOMC include:

7 BOG, Ny Fed President, 4 rotatinf district presidents

Dual mandate:

maximum employment, stable prices, (moderate long-term interest rates

when were bank failures the highest

1933

FDIC was created through _________ which created deposit insurance

Glass-Steagall

When the Fed buys bonds, money supply goes up it is called

expansionary monetary policy

WHen fed sells bonds money supply goes down it is called

contractionary monetary policy

If the Fed buys bonds the supply shifts _______ and demand goes____

rightward,down

the the fed sells bonds the supply shifts_______ and the demand goes_______

leftward, up