Fed Reserve Bank System Flashcards
How many Reserve Banks (U.S. District Banks) are there?
12
How many board of Governors?
7
What is the Federal Open Market Committee (FOMC)?
12 reserve banks + 7 board of governors
How does the Fed make Monetary Policy?
- Sets reserve requirements for banks at a minimum
- Sets lending interest rates
(a. Discount Rate; from Fed to banks)
(b. Federal Funds Rate; among banks) - Buys and Sells U.S. Treasuries bonds/securities to influence money supply
Who signed the Federal Reserve Act and why?
President Woodrow Wilson, b/c there was not a standardized currency at the time
What is the Dual Mandate?
1977, monetary policy objectives of the reserves as maintaining long run growth of monetary and credit aggregates commensurate with economies’ long run potential to increase production and to
- Maximum employment (economic growth)
- Stable prices (inflation target of 2%
What is Inflation?
too much money chasing too few goods
causes prices to rise
What is Deflation?
Too little money chasing too many goods
causes prices to fall
What type of relationship is between inflation and unemployment?
Inverse
What is Low interest rates?
reduced price of borrowing and may increase economic growth
What is High interest rates?
increased rate of return paid by banks, on saving deposits
may slow down economic growth
