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Questions and Answers
What is an Easy Money Policy?
What is an Easy Money Policy?
- Monetary policy that does not affect the money supply
- Monetary policy that increases the money supply (correct)
- Monetary policy affecting only government spending
- Monetary policy that decreases the money supply
What does a Tight Money Policy do?
What does a Tight Money Policy do?
- Increases the money supply
- Decreases the money supply (correct)
- Keeps the money supply stable
- Encourages inflation
What is the FOMC?
What is the FOMC?
Federal Open Market Committee
What are Government Bonds/Securities?
What are Government Bonds/Securities?
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What is the function of the Federal Reserve?
What is the function of the Federal Reserve?
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What is the Discount Rate?
What is the Discount Rate?
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What are Federal Reserve Districts?
What are Federal Reserve Districts?
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Who is the Fed Reserve Chairman?
Who is the Fed Reserve Chairman?
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Define Monetary Policy.
Define Monetary Policy.
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What is Fiscal Policy?
What is Fiscal Policy?
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What is Inflation?
What is Inflation?
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What does GDP stand for?
What does GDP stand for?
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What is Unemployment?
What is Unemployment?
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What are Open Market Operations?
What are Open Market Operations?
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What are Government Securities?
What are Government Securities?
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Define Aggregate Demand.
Define Aggregate Demand.
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The Fed can increase the money supply by lowering the ______.
The Fed can increase the money supply by lowering the ______.
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To decrease the money supply, the Fed can raise the ______.
To decrease the money supply, the Fed can raise the ______.
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Study Notes
Easy Money Policy
- Aims to increase the money supply to stimulate the economy
- Actions include lowering the discount rate, reducing reserve requirements, and purchasing government securities
Tight Money Policy
- Focuses on decreasing the money supply to reduce inflationary pressures
- Strategies involve increasing discount rates to slow down aggregate demand
FOMC
- Federal Open Market Committee makes key decisions affecting the economy by adjusting the money supply
- Considered the most influential committee within the Federal Reserve
Government Bonds/Securities
- U.S. Treasury bonds issued by the government with various terms including 3 months, 6 months, and 1 year
Federal Reserve
- Established in 1913 under the Federal Reserve Act, serving as the central bank of the U.S.
- Operates as an independent agency in the federal executive branch, regulating banking and national monetary policy
- Oversees financial stability and is owned by commercial banks
Discount Rate
- The interest rate charged for loans from the Federal Reserve to financial institutions
Federal Reserve Districts
- The Federal Reserve Act created twelve banking districts; Georgia operates under the Atlanta district
Fed Reserve Chairman
- Leads the Federal Reserve Bank Board of Directors and serves on the FOMC
- Appointed by the U.S. Senate
Monetary Policy
- A government tool to influence macroeconomic conditions such as inflation, unemployment, and economic growth
- Implemented through changes in interest rates or exchange rates
Fiscal Policy
- Government economic strategies focused on modifying spending and taxation levels to influence economic conditions
Inflation
- Characterized by a general rise in prices, with a target inflation rate set by the Fed at no more than 2%
GDP (Gross Domestic Product)
- Measures the total market value of all final goods and services produced annually, with a Fed target growth rate of 3-5% for job creation
- Concept originated from economist John Maynard Keynes
Unemployment
- Represents individuals actively seeking work but unable to find employment
- The Fed targets an unemployment rate of 5% or less
Open Market Operations
- Involves buying and selling government securities to adjust the money supply directly
Government Securities
- Include Treasury notes, bills, and bonds representing government borrowings, typically offering low interest due to government backing
Aggregate Demand
- The total demand for goods and services in an economy from various sectors including consumers, firms, government, and foreigners, equivalent to GDP
Ways to Increase Money Supply
- Strategies include lowering the discount rate, reducing reserve requirements, and buying government securities
Ways to Decrease Money Supply
- Measures involve raising the discount rate, increasing reserve requirements, and selling government securities
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