The Federal Reserve and Monetary Policy

These flashcards cover key concepts and terms related to the Federal Reserve and its monetary policy as discussed during the lecture.

Monetary Policy

The process by which the Federal Reserve manages the supply of money to influence the economy.

Fed Funds Rate (FFR)

The interest rate that depository institutions charge each other for overnight loans.

Discount Rate

The interest rate charged by Federal Reserve Banks for overnight loans to depository institutions.

Contractionary Monetary Policy

A policy that increases the Fed Funds target interest rates to reduce inflation.

Expansionary Monetary Policy

A policy that decreases the Fed Funds target interest rates to boost the economy.

Interest on Reserves (IORB)

Interest paid on funds that banks hold in their reserve balance accounts at a Federal Reserve Bank.

Open Market Operations

The buying and selling of government securities by the Federal Reserve to regulate reserves.

Arbitrage

The simultaneous purchase and sale of funds or goods to profit from a price difference.

Reservation Rate

The lowest rate that banks are likely willing to accept for lending out their funds.

Aggregate Demand (AD)

The total demand for goods and services within an economy at a given overall price level.

Inflationary Gap

The difference between potential GDP and actual GDP when the economy is operating above its potential.

Recessionary Gap

The difference between potential GDP and actual GDP when the economy is operating below its potential.

FOMC

Federal Open Market Committee, responsible for setting monetary policy.

Interest Rate Hikes

Increases in interest rates executed by the Federal Reserve to control inflation.

Dynamic ADAS Model

A framework to analyze the interactions between aggregate demand and aggregate supply.