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Related Flashcards
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Cards In This Set
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What are the two short-term interest rates controlled by the Fed?
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Fed Funds Rate and Discount Rate
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Explain the money process.
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The Fed creates money out of thin air to purchase treasuries and gives it to the government. The government then spends the newly invented money into the system. The people who receive the new money inevitably put it back into the banking system.
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Why is 10% of checking deposits kept as reserves?
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Because this 10% allows money to be loaned out again and again
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Why is newly created money loaned to the Fed at a discount rate?
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The banks borrow at a cheap rate and lend at a higher rate to create money
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What are the three ways that the Fed increases the money supply?
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1) Buying bonds, 2) Decreasing the reserve requirement, 3) Decreasing the discount rate
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What does the Fed create money from?
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Debt
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The approach to monetary policy in which the central bank chooses a level for the money supply and adjusts it when economic conditions change
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Money targeting
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The approach to monetary policy in which the central bank chooses a level for the nominal interest rate and adjusts it when economic conditions change
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Interest-rate targeting
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In money targeting, what must remain fixed?
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Money supply
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In interest-rate targeting, what must remain fixed?
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The interest rate
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What specific interest rate does the Fed target?
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The Federal Funds Rate
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