Ch 14 - The Federal Reserve System

Question 1

monetary policy

Answer 1

the use of money and credit controls to influence macroeconomic outcomes

Question 2

money supply (M1)

Answer 2

currency held by the public, plus balances in transactions accounts

Question 3

M2 money supply

Answer 3

M1 plus balances in most savings accounts and money market mutual funds

Question 4

required reserves

Answer 4

the minimum amount of reserves a bank is required to hold; = required reserve ratio * transactions deposits

Question 5

excess reserves

Answer 5

bank reserves in excess of required reserves

Question 6

money multiplier

Answer 6

the number of deposit (loan) dollars that the banking system can create from the $1 of excess reserves; = 1 / required reserve ratio

Question 7

yield

Answer 7

the rate of return on a bond; = annual interest payment / bond’s price

Question 8

open market operations

Answer 8

Federal Reserve purchases and sales of government bonds for the purpose of altering bank reserves

Question 9

federal funds rate

Answer 9

the interest rate for interbank reserve loans

Question 10

discounting

Answer 10

Federal Reserve lending of reserves to private banks

Question 11

discount rate

Answer 11

the rate of interest the Federal Reserve charges for lending reserves to private banks

Question 12

portfolio decision

Answer 12

the choice of how (where) to hold idle funds

Question 13

bond

Answer 13

a certificate acknowledging a debt and the amount of interest to be paid each year until repayment; an IOU