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Flashcards in Monetary Policy in Practice Deck (10)
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1
Q

dual mandate of Fed

A
  1. Keep inflation low (below 2%)
  2. Maximize employment (low unemployment)
2
Q

additional goals of the fed

A
  1. help maintain financial stability
  2. supervise/regulate financial institutions
  3. managing payment system
  4. promoting consumer protection
3
Q

Targets of the fed

A

price of gold in dollars (1920s)

money growth rate (1970s)

Federal funds rate (1980s-present)

4
Q

Federal funds rate

A

overnight interest rate

5
Q

Tools of the Fed

A
  1. Reserve requirements
  2. Discount rate
  3. Open market operations
6
Q

reserve requirements for banks

A

% of revenue that banks have to hold in the fed or in vaults

7
Q

discount rate

A

the interest rate at which the Fed lends to other banks (overnight)

8
Q

Open market operations

A

purchases or sales of Treasury securities by Fed

9
Q

ways to lower the Fed funds rate

A
  1. buy Treasury securities from banks
  2. raise Fed. interest rates
10
Q

ways in which real interest rates impact the economy

A

altering borrowing costs

altering value of asset prices

altering the value of the dollar