CH. 15 Monetary Policy and the Federal Reserve

Flashcards relating to monetary policy and the Federal Reserve.

Central Bank

The organization responsible for conducting monetary policy and ensuring that a nation’s financial system operates smoothly.

Federal Reserve (The Fed)

The central bank in the U.S.; a semi-decentralized entity mixing government appointees with representation from private-sector banks.

Board of Governors

A seven-member board appointed by the President of the United States and confirmed by the Senate that runs the Federal Reserve.

Federal Open Market Committee (FOMC)

Makes decisions regarding open market operations; comprised of the 7 members of the Federal Reserve’s Board of Governors plus 5 voting members from the regional Federal Reserve Banks.

Bank Run

When depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost.

Deposit Insurance

An insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt.

Federal Deposit Insurance Corporation (FDIC)

The entity to which banks pay an insurance premium to provide deposit insurance.

Lender of Last Resort

An institution that provides short-term emergency loans in conditions of financial crisis.

Open Market Operations

The central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates.

Reserve Requirement

The percentage of each bank’s deposits that it is legally required to hold either as cash in their vault or on deposit with the central bank.

Discount Rate

The interest rate charged by the central bank on the loans that it gives to other commercial banks.

Quantitative Easing (QE)

The purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand.

Expansionary Monetary Policy

A monetary policy that increases the supply of money and the quantity of loans.

Loose Monetary Policy

A monetary policy that increases the supply of money and the quantity of loans.

Contractionary Monetary Policy

A monetary policy that reduces the supply of money and loans

Tight Monetary Policy

A monetary policy that reduces the supply of money and loans

Federal Funds Rate

The interest rate at which one bank lends funds to another bank overnight.

Countercyclical

Moving in the opposite direction of the business cycle of economic downturns and upswings

Excess Reserves

Reserves banks hold that exceed the legally mandated limit.

Velocity

The speed with which money circulates through the economy.

Inflation Targeting

A rule that the central bank is required to focus only on keeping inflation low.