Macro Economics Chapter 15 Key Words Flashcards
discount rate
The interest rate the Fed charges on loans of reserves to banks.
excess reserves
Potential loan balances held in vault cash or on deposit with the Fed in excess of required reserves.
federal funds market
A private market in which banks lend reserves to each other for less than 24 hours.
federal funds rate
The interest rate banks charge for overnight loans of reserves to other banks.
fractional reserve Banking
A system in which banks keep only a percentage of their deposits on reserve as vault cash and deposits at the Fed.
monetary policy
The Federal Reserve’s use of open market operations, changes in the discount rate, and changes in the required reserve ratio to change the money supply (M1).
money multiplier
The maximum change in the money supply (checkable deposits) due to an initial change in the excess reserves banks hold. The money multiplier is equal to 1 divided by the required reserve ratio.
open market operations
The buying and selling of government securities by the Federal Reserve System.
required reserve ratio
The percentage of deposits that the Fed requires a bank to hold in vault cash or on deposit with the Fed.
required reserves
The minimum balance that the Fed requires a bank to hold in vault cash or on deposit with the Fed.
term auction facility (TAF)
A monetary policy tool created in 2007 during the financial crisis to encourage banks to borrow reserves and thereby extend new loans. Under this program, banks in sound financial condition are allowed to make interest rate bids for short term collateralized Federal Reserve loans.
