Day 24 Flashcards
______ policy - A set of actions to control a nations overall money supply and achieve economic growth (wants to regulate economic activity over time)
Monetary policy
_____ policy - the use of government spending and taxation to influence the economy (wants to regulate economic activity over time)
Fiscal policy
What are 3 things the FED does
Conducting national monetary policy, supervising and regulating banks, and maintaining financial stability
How does the FED do all these things?
They review applications submitted by bank holding companies
Why does the FED do all these things?
They ensure that financial institutions operate in a safe and sound manner and that they comply with laws and regulations
Why is inflation NOT good for our economy?
It slows down economic growth
How does inflation slow down economic growth?
Things cost more so people spend less
_____ - Demand is down and supply of goods is high, production decreases and unemployment increases, which leads to a recession
Inflation
What can the FED do when a recession hits?
Lower interest rates, and encourage people to borrow money and make purchases
Why does the FED need to be careful when lowering interest rates?
So balance isn’t impacted in the long run
Name the two FED divisions
Board of Governors
12 Regional reserve banks
Who is responsible for setting the monetary policy and managing the nations money? (Board of governors or 12 regional reserve banks)
Board of governors
Who is responsible for carrying out the policy of the board and supervising financial institutions (board of governors or 12 regional reserve banks)
12 regional reserve banks
What are the FED’s two primary goals in managing money?
Maintaining stable prices (control inflation) and maximum employment and production output
What does raising and lowering the interest rates influence?
It makes the economy stable over time
When interest rates go DOWN, people spend ____ because purchasing becomes less expensive. This spending _____ growth in the economy, but if it happens too ____ demand will ____ too fast and supply cannot keep up. Prices then ___ too quickly which leads to ____
Money, motivates, much, increase, rise, shortages
Why is the FED considered the bankers bank?
It processes and clears one third of all checks which is approximately 20 billion checks per year
Why is the FED considered the governments bank?
It maintains the checking account of the US treasury
What bureaus produce coin and paper currency in the US?
Bureau of the Mint
Bureau of Engraving and Printing
In what ways do the FED influence the amount of money in circulation
- Reserve requirement (banks are required to set aside a certain amount of cash in “reserve” usually 3-10% of their deposits)
- Discount Rate (the money paid by banks to borrow money from a federal reserve bank)
- Open market operations (Buying and selling of government securities, they SELL securities to the money deploy which in turn REDUCES interest rates, the BUY securities to the money supply which in turn INCREASES interest rates)
Why is the FED called a decentralized central bank?
It is structured to eliminate government control but remains accountable to both the government and the public
Board is the ____ side
Government
Reserve banks are the ____ side
Private
