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Federal Reserve System Overview

The document outlines key concepts related to the Federal Reserve System, including member banks, currency, and the fractional reserve system. It discusses various monetary policies such as easy and tight money policies, as well as tools like open market operations and the discount rate. Additionally, it touches on theories related to money supply and its impact on the economy, including monetarism and the quantity theory of money.

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8 views2 pages

Federal Reserve System Overview

The document outlines key concepts related to the Federal Reserve System, including member banks, currency, and the fractional reserve system. It discusses various monetary policies such as easy and tight money policies, as well as tools like open market operations and the discount rate. Additionally, it touches on theories related to money supply and its impact on the economy, including monetarism and the quantity theory of money.

Uploaded by

369381
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

LESSON 1, CHAPTER 16

Aspects
Parts, phases
Member Banks
Bank belonging to the Federal Reserve System
Functions
Roles or purposes
Currency
Paper and coin component of the money supply, today consisting of Federal Reserve notes
Coins
Metallic forms of money such as pennies, nickels, dimes, and quarters
Bank Holding Companies
Company that owns and controls one or more banks

LESSON 2, CHAPTER 16

Fractional Reserve System


System requiring financial institutions to set aside a fraction of their deposits in the form of
reserves
Legal Reserves
Currency and deposits used to meet the reserve requirements
Reserve Equipment
Formula used to compute the amount of a depository institution’s required reserves
Member Bank Reserve
Reserves kept by member banks at the Fed to satisfy reserve requirements
Excess Reserves
Financial institution’s cash, currency, and reserves not needed for reserve requirements;
potential source of new loans
Monetary Policy
Actions by the Federal Reserve System to expand or contract the money supply to affect the
cost and availability of credit
Interest Rate
The price of credit to a borrower
Easy Money Policy
Monetary policy resulting in lower interest rates and greater access to credit; associated with an
expansion of the money supply
Light Money Policy
Monetary policy resulting in higher interest rates and restricted access to credit; associated with
a contraction of the money supply
Open Market Operations
Monetary policy in the form of U.S. Treasury bills, or notes, or bond sales and purchases by the
Fed
Discount Rate
Interest rate that the Federal Reserve System charges on loans to the nation’s financial
institutions
Prime Rate
Lowest interest rate commercial banks charge their best customers
Federal Funds Rate
The interest rate banks charge each other for short-term loans (usually overnight)
Quantitative Easing
Technique used by the Federal Reserve to keep interest rates low and encourage banks to take
on more loans to stimulate the economy
Monetarism
School of thought stressing the importance of stable monetary growth to control inflation and
stimulate long-term economic growth
Quantity Theory of Money
Hypothesis that the supply of money directly affects the price level over the long run
Wage-price Controls
Policies and regulations making it illegal for firms to give raises or raise prices without
government permission
Explicit
Openly and clearly expressed

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