Podcast
Questions and Answers
What is the definition of a central bank?
What is the definition of a central bank?
- A private bank that manages personal finances
- The bank within a nation responsible for creating monetary policy (correct)
- A type of investment fund
- An international banking institution
What does it mean to implement?
What does it mean to implement?
Use to complete a specific action
What does reserve mean?
What does reserve mean?
To set aside or hold for another
What are securities?
What are securities?
How does the Fed respond to recessions?
How does the Fed respond to recessions?
How will borrowers likely benefit when the Fed reduces reserve requirements?
How will borrowers likely benefit when the Fed reduces reserve requirements?
What is a central bank's primary role?
What is a central bank's primary role?
What are a central bank's primary goals?
What are a central bank's primary goals?
What is a banking activity of the Fed?
What is a banking activity of the Fed?
What does a central bank use monetary policy to do?
What does a central bank use monetary policy to do?
What is the full name of the US central bank, known as the Fed?
What is the full name of the US central bank, known as the Fed?
What is a potential negative effect of expansionary policy?
What is a potential negative effect of expansionary policy?
Economists studying the money supply categorize its status based on what?
Economists studying the money supply categorize its status based on what?
How does the Fed's use of open market operations affect banks?
How does the Fed's use of open market operations affect banks?
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Study Notes
Central Bank
- Central banks are national institutions tasked with formulating and executing monetary policy.
- The Federal Reserve Bank is the central bank of the United States.
Monetary Policy and Economic Impact
- The Fed's primary goal is to minimize unemployment and ensure stable cash flow in the economy.
- Central banks utilize monetary policy to direct economic activity, aiming to prevent recessions and promote growth.
- An expansionary monetary policy may lead to increased inflation as a potential negative effect.
Banking Functions and Reserve Requirements
- The Fed engages in banking activities such as storing deposits for commercial banks.
- Reducing reserve requirements can lead to lower interest rates, benefiting borrowers by making loans cheaper.
- Open market operations used by the Fed regulate bank liquidity, influencing how banks operate.
Securities and Investments
- Securities are financial instruments used to safeguard investments and can impact market stability.
- Buying securities is a strategy the Fed employs during recessions to inject liquidity into the economy.
Liquidity and Money Supply
- Economists assess the money supply based on liquidity, which refers to the ease with which money can be converted into cash.
Key Terms to Remember
- Implement: The action taken to fulfill a specific monetary policy goal.
- Reserve: Funds set aside to meet regulatory requirements or manage liquidity.
- Securities: Investment instruments that provide protection and stability for investors.
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