Chapter 15: The Federal Reserve System and Monetary Policy Flashcards
Monetary policy
Policy that involves changing the rate of growth of the supply of money in circulation in order to affect the cost and availability of credit
FOMC Federal Open Market Committee
12-member committee in the Federal Reserve System that meets 8 times a year to decide the course of action that the Fed should take to control the money supply
Check clearing
Method by which a check that has been deposited in one institution is transferred to the issuer’s depository institution
Functions of the Fed
Supplying paper currency, regulating the money supply, clearing checks, holding reserves and setting reserve requirements, supervising banks, acting as government’s fiscal agent
Loose money policy
Monetary policy that makes credit inexpensive and abundant, possibly leading to inflation
Tight monetary policy
Monetary policy that makes credit expensive and in short supply in an effort to slow the economy
Fractional reserve banking
System in which only a fraction of the deposits in a bank is kept on hand, or in a reserve; the remainder is available to lend
Reserve requirements
Regulations set by the Fed requiring banks to keep a certain percentage of their checkable deposits as cash in their own vaults or as deposits in their Federal Reserve district bank
Discount rate
Interest rate that the Fed charges on loans to commercial banks and other depository institutions
Prime rate
Rate of interest that banks charge on loans to their best business customers
Federal funds rate
Interest rate that banks charge each other on loans (usually overnight)
Open-market operations
Buying and selling of US securities by the Fed to affect the money supply
Fed
The Federal Reserve System created by Congress in 1913 as the nation’s central banking organization
