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Questions and Answers
Welke van de volgende doelstellingen was een oorspronkelijke reden voor de oprichting van de Federal Reserve?
Welke van de volgende hulpmiddelen wordt gebruikt om de geldhoeveelheid te beïnvloeden?
Wat was de reactie van de Federal Reserve tijdens de Grote Depressie?
Welke van de volgende frameworks wordt gebruikt door de Federal Reserve voor het bepalen van het monetaire beleid?
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Welke van de volgende crises was een belangrijke testcase voor de Federal Reserve?
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Study Notes
Founding
- Established on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act
- Created to address banking panics and monetary policy weaknesses that led to economic instability
- Original purpose:
- Provide an elastic currency (able to expand and contract as needed)
- Prevent banking panics and maintain financial stability
- Supervise and regulate banking institutions
- Act as a lender of last resort during times of financial stress
Monetary Policy
- Dual Mandate: maximize employment and price stability (low inflation)
- Tools used to implement monetary policy:
- Open Market Operations (buying/selling government securities to increase/decrease money supply)
- Discount Rate (interest rate at which banks borrow from the Fed)
- Reserve Requirements (percentage of deposits banks must hold in reserve)
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Monetary Policy Objectives:
- Inflation targeting: keep inflation low and stable
- Maximum employment: promote job growth and low unemployment
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Frameworks:
- Taylor Rule: guideline for setting interest rates based on inflation and GDP growth
- Forward-Looking Policy: considering future economic conditions when making policy decisions
Crisis Response
- 1913-1920s: Early years marked by struggles to establish credibility and respond to World War I financing needs
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Great Depression (1929-1939):
- Fed's slow response and restrictive policies exacerbated the crisis
- Led to significant reforms, including the Banking Act of 1935
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1970s-1980s:
- High inflation and unemployment led to the appointment of Paul Volcker as Chairman
- Tight monetary policy (high interest rates) to combat inflation
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2007-2008 Global Financial Crisis:
- Unconventional monetary policies, including quantitative easing and forward guidance
- Emergency lending facilities and stress tests to stabilize the financial system
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Description
Test your knowledge of the Federal Reserve System, its history, monetary policy, and crisis response. Learn about the Federal Reserve's dual mandate, tools, and objectives.
