The Federal Reserve and Monetary Policy

Question 1

Board of Governors

Answer 1

The seven member board that oversees the Federal Reserve System (Fed)

Question 2

Monetary Policy

Answer 2

The actions the Fed takes to control the money supply and the rate of inflation in the economy

Question 3

Federal Reserve District

Answer 3

12 banking districts created by the Federal Reserve Act

Question 4

Federal Open Market Committee (FOMC)

Answer 4

Makes key decisions about interest rates and decide whether to increase or decrease the money supply

Question 5

Check Clearing

Answer 5

Process which banks record whose account gives up money and whose account receives money when a customer writes a check

Question 6

Federal Funds Rate

Answer 6

Interest rate banks charge each other for loans

Question 7

Discount Rate

Answer 7

Rate the Fed charges for loans to commercial banks

Question 8

Money Creation

Answer 8

Process when money enters into circulation

Question 9

Required Reserved Ratio (RRR)

Answer 9

Ratio of reserves to deposits required of banks by the Fed

Question 10

Money Multiplier Formula

Answer 10

Amount of new money that will be created with each demand deposit (calculated as 1 divided by RRR)

Question 11

Excess Reserves

Answer 11

Reserves greater than the required amounts

Question 12

Prime Rate

Answer 12

Rate of interest banks charge on short term loans to their best customers (usually large companies with good credit)

Question 13

Open Market Operations

Answer 13

Buying & selling government securities to change the supply of money