Ch 12 Monetary Policy and the Federal Reserve Flashcards
Board of Governors
the leadership of the Fed, consisting of seven governors appointed by the president to staggered 14-year terms
Federal Open Market Committee (FOMC)
the committee that makes decisions concerning monetary policy
Banking panic
a situation in which news or rumors of the imminent bankruptcy of one or more banks leads bank depositors to rush to witdraw their funds
Deposit insurance
a system under which the government guarantees that depositors will not lose any money even if their bank goes bankrupt
Federal funds rate
the interest rate that commercial banks charge each other for very short-term (usually overnight) loans; because the Fed frequently sets its policy in terms of the federal funds rate, this rate is closely watched in financial markets
Portfolio allocation decision
the decision about the forms in which to hold one’s wealth
Demand for money
the amount of wealth an individual or firm chooses to hold in the form of money
Money demand curve
a curve that shows the relationship between the aggregate quantity of money demanded M and the nominal interest rate i; because an increase in the nominal interest rate increases the opportunity cost of holding money, which reduces the quantity of money demanded, the money demand curve slopes down
Discount window lending
the lending of reserves by the Federal Reserve to commercial banks
Discount rate (or Primary credit rate)
the interest rate that the Fed charges commercial banks to borrow reserves
