Monetary Policy 2

Flashcards covering key terminology and concepts related to monetary policy and banking.

Reserve Requirement

The percentage of deposits that banks are required to keep as reserves.

Reserve Ratio

The ratio of a bank's reserves to its total deposits, expressed as a percentage.

Excess Reserves

Reserves that banks hold above the required amount.

Federal Funds Market

A market where banks can lend excess reserves to other banks.

Federal Funds Rate

The interest rate at which banks lend reserves to each other overnight.

Discount Rate

The interest rate at which banks can borrow money from the Federal Reserve.

Open Market Operations

The buying and selling of government securities by the Federal Reserve to control the money supply.

Expansionary Monetary Policy

A monetary policy that increases the money supply to stimulate the economy.

Contractionary Monetary Policy

A monetary policy that reduces the money supply to slow down inflation.

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

Short-term Lending

Loans made for a short period, usually overnight, between banks.

Investment and GDP

Investment spending has a direct effect on the overall economic growth, expressed as Gross Domestic Product (GDP).

Aggregate Demand

The total demand for goods and services within a particular market or economy.

Treasury Bills

Government securities that are issued to finance government spending.

Monetary Policy

Actions taken by a central bank to manage money supply and interest rates.

Demand for Federal Funds

The quantity of reserves that banks want to hold at a given interest rate.

Opportunity Cost of Reserves

The potential returns that banks forego by holding reserves instead of investing them.

Stabilization

Polices aimed at maintaining economic stability through controlling inflation and promoting growth.