The Federal Reserve Bank

Flashcards about the Federal Reserve Bank, Monetary Policy, and their effects on the economy.

What are the three main entities discussed in the lecture?

Households, Businesses, and Government

What is the main role of the Federal Reserve (The Fed)?

To help control inflation by regulating/controlling the money supply and interest rates.

Who is the current chairman of the Federal Reserve?

Jerome Powell

What is the definition of quantitative easing?

Pumping money into the economy

What are the 3 tools of the FED?

Discount Rate, Required Reserve Ratio and Open Market Operations

What is the discount rate?

The interest rate that banks must pay to the Fed for loans.

What is the effect of a high discount rate?

Banks borrow less from the Fed, thus have less money to lend.

What is the definition of Interest Rate?

The cost of borrowing money, expressed as a percentage of the loan amount.

What does a higher reserve requirement entail?

Banks have less money available to loan out.

Explain Open Market Operations

The Fed can sell bonds to banks, reducing the money banks have to loan. Conversely, the Fed can buy bonds back from banks, increasing the money banks have to loan.

What is the effect of the FED increasing the Discount Rate?

This can lead to less money in circulation, potentially lowering prices but also possibly causing businesses to suffer.

What is Expansionary Monetary Policy?

Pumping money into the economy to help create jobs which might increase inflation; this is done when economy is in trouble / in a recession

What is Contractionary Monetary Policy?

Taking money OUT of the Economy, to combat inflation which might hurt employment; this is done when the economy is doing great and might be doing TOO well