ECON 3330 FINAL
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44 Terms
Federal Reserve Bank
The central bank for the U.S.
Who created the Federal Reserve Bank and when?
The Federal Reserve Act in 1913
What is the Federal Reserve Bank responsible for?
Bank supervision, monetary policy, services to banks, and the government
How many individual banks are in the Federal Reserve Bank?
12 regional banks
Who heads each regional bank?
Presidents, which chosen by a private board
Who chooses the governors?
POTUS and the U.S. Senate
Who makes the policies at FED?
The Federal open Market Committee
How many people are in the federal open market committee?
12 members total, a board of governors, president of NY fed, and 4 others
How long are terms the governors are chosen for?
14 years, non-renewable terms
Why is the FED not completely accountable?
Because congress could change laws and take over the budget
What makes the FED a good central bank?
Accountability, transparency of policy decisions, decisions by committee, independence, and good policy framework
What’s the banking system in the U.S.?
Fractional Reserve System
Does the FED indirectly or directly control M1?
Indirectly
What is the reserve ratio?
The fraction of deposits set aside
What is the money creation process?
Banks create money by making loans
What is the result of loans creating new deposits?
New money “M1=demand deposits+currency in circulation”
Why is lending repeated until all reserves are held as required reserves?
Because only a fraction of each new deposit must be set aside as required reserves
How to calculate the total amount of lending using the deposit multiplier
1/reserve ratio
Maximum Total Deposits
Maximum Deposits - Existing Deposits
What 3 ways can the Fed influence money creation?
By setting the reserve requirement, opening market operations, and setting the discount rate and federal funds rate target
Discount/Federal Funds Rate change either encourages or discourages what?
Bank Lending
Economic Growth
Low unemployment
Price Stability
Low inflation
Why is there a conflict among goals of employment and price stability?
Because there is a negative relationship between inflation and unemployment as shown by the Philips Curve. Thus requiring opposite policies
Note 
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