Fiscal Policy has to do with the taxing and/or spending of the fed government, and the budget of the government
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What is one significant way the Executive Branch influences fiscal policy?
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-President proposes/prepares the budget
-Signs/Vetoes legislation regarding taxes
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What is one significant way the Legislative Branch influences fiscal policy?
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-Congress passes the budget
-Congress acts on tax/spending legislation
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Define Monetary Policy.
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Monetary Policy is regulating the money supply, controlling inflation/deflation, adjusting the interest rates to regulate the economy, the cost of money, and adjusting the band reserve requirements.
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What are 2 reasons the Federal Reserve Board is given independence in establishing monetary policy?
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-removes the politics from monetary policy decision making
-FRB relies on only expertise when making decisions
-FRB makes economic policies efficiently
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What are the three parts of the Federal Reserve Board?
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1. Board of Governors
2. Reserve Banks
3. Federal Open Market Committee
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When the nation was plaques with financial crisis, how did the Congress fix the problem?
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1913: Federal Reserve Act: initially addressed the fragile banking system, now is in charge of many things
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Who oversees the Federal Reserve System?
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Congress!
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Basic details on the Board of Governors:
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-consists of seven members
-members are appointed by the president
-a governors terms are 14 years, and they are staggered to have one person leave every 2 years
-help write the policies that make our banks financially sound and help formulate the policies that make our nation economically strong
-in charge of 'member banks' which are state chartered financial institutions
-oversees the actions of reserve banks
-participate in Federal Open Market Committee (FOMC)
-address congress twice a year
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FOMC:
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the committee that directs the nations monetary policy
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Federal Open Market Committee:
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-feds chief body for monetary policy making
-voting membership combines board of governors, president of the federal reserve bank, and for other reserve bank presidents
-meet 8 times a year
-discuss developments in the financial and foreign exchange markets
-discuss the monetary policy options that would best promote the economy's sustainable growth
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Open Market Operations
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-discuss the monetary policy options to best promote economy
-deliberate the options, members vote on a directive that is issues to the new york fed's domestic trading desk
-this is when they need to decide to easy, tighten or maintain the current policy, the desk then either buys or sells US Government securities on the open market to achieve this objective
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What rate does the FOMC set a target for?
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Federal Funds Rate
-they seek to provide the monetary stimulus required to foster a healthy economy
-always announced to the public
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Reserve Banks:
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-conduct research on the economy, supervise banks in their regions and provide financial services to banks and the US government
-decentralized
-process the treasury's payments
-sell its securities and assist with its cash management
-conduct research on the national and regional economies, prepare reserve bank presidents for their participations in the FOMC and disseminate info about the economy
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How many districts are there in the Reserve Banks?
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12
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Three activities the Reserve Bank usually serve:
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1. bankers
2. the US treasury
3. public
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Board of Directors:
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impart a private sector management perspective to the reserve bank that emphasizes efficiency and quality
