Econ 2105 - Chpt. 11

the ease with which an asset is converted to the medium of exchange.

the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks.

convert Federal Reserve Notes into gold

must increase its required reserves by $1.

13.33.

more than $200.

lower the discount rate, lower the reserve requirement

decreases, the money multiplier increases, and the money supply increases.

currency, demand deposits, money market mutual funds

important for analyzing the monetary system.

those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.

The Federal Open Market Committee meets every 12 weeks.

(1) Society faces a short-run trade-off between inflation and unemployment, and (2) prices rise when the government prints too much money.

the bank keeps 8 percent of its deposits as reserves and loans out the rest.

$360 increase in excess reserves and $40 increase in required reserves.

29,000

households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.

sell bonds. This selling would reduce the money supply.

an item that buyers give to sellers when they want to purchase goods and services

the yardstick people use to post prices and record debts

an item that people can use to transfer purchasing power from the present to the future.

objects that have value in themselves and that are also used as money

money by government decree

the quantity of money available/circulating in the economy. (currency + deposits)

the paper bills and coins in the hands of the public

balances in bank accounts that depositors can access on demand by writing a check

Currency, demand deposits, traveler's checks, and other checkable deposits.

everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.

a government monetary authority that issues currency and regulates the supply of credit and holds the reserves of other banks and sells new issues of securities for the government

the setting of the money supply by policymakers in the central bank

The central bank of the U.S. Controls the the supply of money and attempts to control interest rates.

Since February 1, 2005 he has been chairman of the Federal Reserve

-Board of Governors (7 members), located in Washington, DC -12 regional Fed banks, located around the U.S. -Federal Open Market Committee (FOMC), includes the Bd of Govs and presidents of some of the regional Fed banks The FOMC decides monetary policy.

Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco

In a fractional reserve banking system, banks keep a fraction of deposits as reserves and use the rest to make loans.

The fraction of deposits that banks hold as reserves.

a simplified accounting statement that shows a bank's assets & liabilities.

deposits, assets include loans & reserves.

the amount of money the banking system generates with each dollar of reserves The money multiplier equals 1/R.

1.) Open-Market Operations (OMOs): the purchase and sale of U.S. government bonds by the Fed (Used the Most) 2.) Reserve Requirements (RR): affect how much money banks can create by making loans (Rarely Used) 3.) The Discount Rate: the interest rate on loans the Fed makes to banks (Used 2nd Most)

A tool of monetary policy, it involves the Fed's buying (or selling) of securities from (or to) commercial banks and the general public.

regulations set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district bank

the interest rate on loans the Fed makes to banks

the interest rate the commercial banks charge each other for borrowing and lending reserves is called

Is the inter-bank market where excess reserves from one bank can be loaned to another bank

If households hold more of their money as currency, banks have fewer reserves, make fewer loans, & money supply falls. If banks hold more reserves than required, they make fewer loans, & money supply falls. Yet, Fed can compensate for household & bank behavior to retain fairly precise control over the money supply.

When people suspect their banks are in trouble, they may "run" to the bank to withdraw their funds, holding more currency and less deposits