Monetary Policy Flashcards
Fiscal Policy
What the government does:
They manipulate taxes
Monetary Policy:
What the federal reserve does:
Manipulate interest rates
What are bonds
Also known as securities
are loans or IOU’s that represent debt that the government must ready to the lender
What are the three ways the bank can change money supply
- Reserve Requirement
- Discount Rate
- Open Market Operations
What are Reserve Requirements
the percent of deposits that the banks must hold in reserves
What are Discount Rates?
Interest rates that the central bank charges commercial banks
What are Open Market Operations:
When the central bank buys government buys bonds from commercial banks, thus putting more money in bank reserve
What happens when there is a low reserve requirement
An increase in money supply
What happens when there is high reserve requirement
There is a decrease in money supply
What happens when there is a low discount rate
There is a high money supply
What happens when there is a high discount rate
There is a low money supply
what are the types of open Market Operations
Bonds
What is Monetary Base
The Monetary Base is made up of bank reserves (this is not apart of the money supply), currency, and circulation (this is apart of the money supply)
What happens when money supply decreases
Interest rates increase
What happens when bond prices go up
Interest rates go down
What happens when bond prices go down
Interest rates go up
