Objective 5

Question 1

Required reserve ratio

Answer 1

The fraction of deposits that FED require a bank to hold in reserves and not loan out.

Question 2

Discount rate

Answer 2

The minimum interest rate set by the FED when lending through its discount window to other banks and institutions.

Question 3

Open market operations

Answer 3

The buying and selling of U.S. government securities by the Fed for purposes of carrying out monetary policy.

Question 4

Money multiplier

Answer 4

The multiple of its excess reserves by which the banking system can expand checkable deposits and thus the money supply by making new loans.

Question 5

Taylor rule

Answer 5

A technique developed by economist John Taylor that guides FED policy on how much to adjust interest rates to change inflation and output. Generally, a rate of one-half of the extent to which inflation exceeds its target.