US Central Bank - The Fed Flashcards
What is the U.S. Economy made of?
The sum of all the assets, liabilities and investment decisions made by U.S. Investors.
What is the health of the economy dependent on?
Prevailing interest rates, which are dependent on the availability of money to invest.
What is the effect of interest rates on the economy?
Lower interest rates encourage spending and fuel growth, whereas rising rates have the opposite effect.
What is the congressional mandate for the Federal Reserve?
To maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
What steps does the Fed take when it detects inflation?
Raises interest rates to slow expansion of the economy.
What is inflation?
Increasing prices coupled with decreasing purchasing power.
What is the Fed mandate from their charter statute?
To provide for the establishment of federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the U.S.
What are some of the other duties of the Fed?
Dual mandate to pursue maximum employment and stable prices. To ensure safety and soundness of the nation’s banking and financial system. Playing a major role in operating the nation’s payments system.
Who sits on the FOMC?
The members of the Board of Governors, the president of the Federal Reserve Bank of NY, and the presidents of four other Federal Reserve Banks, who serve on a rotating basis.
What are open market operations?
The purchase and sale of government securities.
How are open market operations funded?
With reserves supplied by participating banks.
What are the range of powers for the Fed?
Rule-making, supervisory oversight and a lender of last resort function.
What strategies does the Fed use to achieve its goals?
Increasing or decreasing the fed funds rate, and purchasing long-term securities to effect long-term interest rates.
What are the key economic statistics that the Fed considers when making monetary policy?
Gross domestic product (GDP), Personal income, Import Price Indexes, Balance of Trade, Treasury Monthly Budget, Consumer Price Index (CPI), Initial Jobless Claims, Retail Sales, Business Inventories, Producer Price index, NY Empire State Index, Capacity Utilization, Industrial Production and the University of Michigan’s Consumer Survey.
How does changing the fed funds rate effect the economy?
By affecting the amount of money financial institutions have on deposit with the Federal Reserve banks.
