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21 Cards in this Set
- Front
- Back
- 3rd side (hint)
What is the Board of Governors?
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The seven member board that oversees the Federal Reserve System. Ben Bernake replaced Alan Greenspan as Chairman.
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These members are appointed for 14yr. terms by President of U.S.A.
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What is Monetary Policy?
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The actions the Federal Reserve takes to influence the level of real GDP and the rate of inflation in the economy.
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Ben Bernake as Chair of Board of Governors is responsible for economic forecasting & interventions through adjustments in prime interest rate.
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What are Federal Reserve Districts?
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The twelve banking districts created by the Federal Reserve Act.
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Each F____ R_____ D_____ is composed of multiple states and operates under The Federal Reserve Act which prevents any one region from exploiting the Central Bank's power at another's expense.
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What is the Federal Advisory Council (FAC)?
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The research arm of Federal Reserve which provides feedback & advice to the Board of Governors concerning the financial health of each district.
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This council meets with the Board of Governors four times per year.
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What is the Federal Open Market Committee (FOMC)?
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A Federal Reserve committee that makes key decisions about interest rates and the growth of the U.S. money supply.
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FOMC's decisions can influence financial markets, rates on home mortgages, & other economic institutions around the world.
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What is Check Clearing?
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The process by which banks record whose account gives up money and whose account receives money when a customer writes a check.
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The Fed can "clear" millions of checks at any one time using high speed equipment within a two-day period.
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What is a Bank Holding Company?
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A company that owns more than one bank.
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The Board of Governors approve or disapprove mergers and charters based on finding & recommendations of Federal Reserve Bank.
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What is the Federal Funds Rate?
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Interest rate that banks charge each other for loans.
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Banks can alwo borrow from the Federal Reserve at this rate of interest.
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What is the Discount Rate?
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Rate the Federal Reserve charges for loans to commercial banks.
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Federal Reserve acts as a lender of last resort & makes emergency loans to commercial banks so they can maintain required reserves.
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What is Net Worth?
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Total assests minus total liabilities.
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Any bank going to Fed for emergency loans too often will be subjet to financial review and close government supervision.
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What is Money Creation?
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The process by which money enters into circulation; not the mere printing of money.
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Banks creat money not by printing it but by charging interest on loans.
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What is the Required Reserve Ration (RRR)?
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The ratio of reserves to deposits required of banks by the Federal Reserve.
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This ensures that banks will have enought funds to supply customers' withdrawl needs.
(Generally a 10% RRR) |
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What is the Money Multiplier Formula?
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Amount of new money that will be created with each demand deposit, calculated as 1 divided by RRR.
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Increase in Money Supply = initial cash deposit x 1/RRR
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What are Excess Reserves?
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Reserves greater than the required amounts. (Est. to be betw. 2 & 3.
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Ensure that banks will always be able to meet theri customers' demands and the Fed's reserve requirements.
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What is the Prime Rate?
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Rate of interest banks charge on short term loans to their best customers.
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Usually given to large companies with good credit ratings. Reflects changes in the discount rate.
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What are Open Market Operations?
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The buying and selling of government securities to alter the supply of money.
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Most used monetary policy tool involving bond purchases and bond sales
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What is Monetarism?
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the belief that the money supply is the most important factor in macroeconomic performance.
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This policy alters the supply of money, which in turn affects interest rates, which affect level of investment & spending in the economy.
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What is Easy Money Policy?
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Monetary policy that increases the money supply. This lowers interest rates & encourages spending.
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Used when the Fed wants to stimulate or expand income due to economic contraction.
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What is Tight Money Policy?
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Monetary policy that reduces the money supply. This pushes interest rates upward causing investment spending to decline lowering Real GDP
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Monetary policy used when economy is expanding rapidly causing high inflation.
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What is Inside Lag?
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Delay in implementing monetary policy. (up to 1 yr. to recognize problem)
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Occur due to length of time needed to identify a problem in Economy or when recognized it takes additional time to enact policies.
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What is Outside Lag?
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The time it takes for monetary policy to have an effect.
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For Fiscal Policy, this time period lasts as long as is required for new government spending or tax policies to take effect & begin to affect Real GDP and the Inflation Rate. (1-2 yrs. to show change effects)
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