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Questions and Answers
What is the definition of a central bank?
What is the definition of a central bank?
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?
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How does the Fed respond to recessions?
How does the Fed respond to recessions?
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How will borrowers likely benefit when the Fed reduces reserve requirements?
How will borrowers likely benefit when the Fed reduces reserve requirements?
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What is a central bank's primary role?
What is a central bank's primary role?
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What are a central bank's primary goals?
What are a central bank's primary goals?
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What is a banking activity of the Fed?
What is a banking activity of the Fed?
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What does a central bank use monetary policy to do?
What does a central bank use monetary policy to do?
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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?
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What is a potential negative effect of expansionary policy?
What is a potential negative effect of expansionary policy?
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Economists studying the money supply categorize its status based on what?
Economists studying the money supply categorize its status based on what?
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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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Description
Test your knowledge of monetary policy with these flashcards focused on the Federal Reserve. Each card features key concepts and terms that are essential for understanding the role of a central bank and its functions. Perfect for students and anyone interested in economics!
