Monetary Policy: The Federal Reserve Flashcards

Questions and Answers

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?

Use to complete a specific action

What does reserve mean?

To set aside or hold for another

What are securities?

A means of protection for investments Signup and view all the answers

How does the Fed respond to recessions?

It buys more securities. Signup and view all the answers

How will borrowers likely benefit when the Fed reduces reserve requirements?

Interest rates will likely decrease. Signup and view all the answers

What is a central bank's primary role?

Creating monetary policy Signup and view all the answers

What are a central bank's primary goals?

Reducing unemployment and maintaining cash flow Signup and view all the answers

What is a banking activity of the Fed?

Storing money for banks Signup and view all the answers

What does a central bank use monetary policy to do?

Steer the economy away from recession and toward growth Signup and view all the answers

What is the full name of the US central bank, known as the Fed?

The Federal Reserve Bank Signup and view all the answers

What is a potential negative effect of expansionary policy?

Increased inflation Signup and view all the answers

Economists studying the money supply categorize its status based on what?

Liquidity Signup and view all the answers

How does the Fed's use of open market operations affect banks?

It affects banks' liquidity. Signup and view all the answers

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.

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!