Macroeconomics - Ch 14: The Federal Reserve - McGraw-Hill

The Federal Reserve System is also known as...

The Fed

The Fed was created in...

1913

A system of 12 Federal Reserve Banks as the central banks for private banks.

The Federal Reserve System

The Federal Reserve System does

Clearing checks, holding bank reserves, providing currency, providing loans

Monetary Policy

the use of money and credit controls to influence macroeconomic outcomes

The Federal Open Market Committee (FOMC)

a committee responsible for Fed's daily activity in financial markets, and have meetings every four to five weeks for econo

The Fed controls the money supply using three policy tools...

Reserve requirements, discount rates, and open market operations

Required reserves = Required reserve ratio × _____ _________

Total deposits

Excess reserves = Total reserves − _____________ ____________

Required reserves

A decrease in excess reserves, the money multiplier, and lending capacity is from

Increase in Reserve requirement

If the reserve requirement decreases, then...

Excess reserves, the money mulitplier, and

Available lending capacity = Excess reserves × ______ __________

Money Multiplier

Discount Rate

where a bank can borrow reserves overnight from the Fed and pay interest

Federal Funds Rate (FFR)

where a bank can borrow excess reserves overnight from another bank and pay interest

A higher discount rate means...

Less reserves borrowed and less loans made

A lower discount rate means...

Higher reserves borrowed and more loans made

In the Federal Reserve, there are _ board members, and one of the members will serve as chairman for _ years.

7, 4

Bond

a certificate acknowledging a debt and the amount of interest to be paid each year until repayment, an IOU.

Bond yield

the rate of return on a bond

Yield = Annual interest payment / Price paid for ____

bond

Pay $1,000 for a bond that pays out $80 a year, and its yield is _.__ or _%.

0.08, 8

Federal Funds Rate

where a bank can borrow another bank's excess reserves overnight and pay interest

A higher discount rate means less loans made, meaning less money in the money supply, which leans the AD towards ___________.

recession

A lower discount rate means more loans are made, making more money in the money supply, therefore leaning AD towards _________.

inflation

securities

an asset that bears interest, such as a government bond

People buy ______ because they pay interest and are a safe investment.

bonds