Monetary Policy: The Federal Reserve Flashcards

In how many cities are Federal Reserve district banks located?

What term describes monetary policy that involves decreasing the money supply?

Why does the Fed pay interest to banks?

What is the best description of what a central bank uses monetary policy to do?

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

Which of these is a banking activity of the Fed?

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

What is the immediate effect of banks having more money to lend due to the domino effect in the money supply?

What is a potential negative effect of an expansionary policy?

Why is the Fed often referred to as a 'lender of last resort'?

How does the Fed generally respond to recessions?

How do economists categorize the status of money based on?

What is the interest rate that banks charge each other for borrowing or storing money?

What consumer activity is directly influenced when the Fed adjusts its interest rate?

What is a central bank's primary role?

Which statements describe how the Fed responds to high inflation? (Select all that apply)

Federal Reserve Overview

The Federal Reserve operates 12 district banks across the United States.
Officially known as the Federal Reserve Bank, it serves as the US central bank.

Monetary Policy Types

Contractionary monetary policy aims to decrease the money supply to combat economic overheating.
Expansionary policy can lead to increased inflation as it boosts the money supply.

Interest and Banking Operations

The Fed pays interest to banks on reserves held, maintaining financial stability.
It acts as a "lender of last resort," providing funds to prevent bank runs and consumer panic during crises.

Economic Steering

Central banks utilize monetary policy to guide the economy from recession towards growth by increasing the money supply during downturns.
Open market operations conducted by the Fed directly influence bank liquidity.

Interest Rates and Lending

An increase in the money supply results in lower interest rates, encouraging banks to lend more.
The federal funds rate is the interest rate at which banks borrow from each other.

High Inflation Responses

In response to high inflation, the Fed may raise interest rates, sell securities, and reduce the money supply to stabilize the economy.

Liquidity and Money Supply

Economists categorize money supply status based on liquidity, which measures how easily assets can be converted to cash.

Consumer Impact

Changes in the Fed's interest rates directly affect consumer borrowing, influencing spending and investment decisions.

Test your knowledge on monetary policy and the Federal Reserve through these flashcards. Learn about the structure, functions, and key terms related to the Federal Reserve System, including the concepts of contractionary policy and reserves.