The Fed & Its Tools
The U.S. central bank created in 1913.
What is the Federal Reserve System?
The narrower measure of the U.S. money supply that includes currency in circulation and checking and savings deposits.
What is M1?
The type of monetary policy the Federal Reserve uses to increase aggregate demand, real GDP, and employment.
What is expansionary monetary policy?
The time between a change in monetary policy and its effect on real GDP and inflation.
What is the outside lag?
This U.S. bank failed in March 2023 after reporting more than $200 billion in assets shortly before its collapse.
What is Silicon Valley Bank (SVB)?
The interest rate banks charge one another for overnight loans.
What is the federal funds rate?
The broader money supply measure that includes M1, small-denomination time deposits, and non institutional market fund shares.
What is M2?
The type of monetary policy that raises the target federal funds rate to slow aggregate demand and inflation.
What is contractionary monetary policy?
The delay involved in recognizing an economic problem and deciding to implement a policy response.
What is the inside lag?
The form of money authorized by a government or central bank that is not redeemable for gold or another commodity.
What is fiat money?
The Federal Reserve committee responsible for setting the target range for the federal funds rate.
What is the Federal Open Market Committee (FOMC)?
On a commercial bank's balance sheet, customer deposits are classified on this side because the bank owes that money to depositors.
What are liabilities?
The curve that shifts to the right when lower interest rates increase consumption and investment spending.
What is the aggregate demand (AD) curve?
The interest rates on mortgages and corporate bonds that the Fed needs to influence to affect investment and aggregate demand.
What are long-term interest rates?
The Federal Reserve chair who used restrictive monetary policy to fight the high inflation of the late 1970s and early 1980s.
Who is Paul Volcker?
The interest rate the Federal Reserve pays banks on the reserve balances they hold at the Fed.
What is interest on reserve balances (IORB)?
The name for deposits that a bank keeps as cash in its vault or on deposit with the Federal Reserve.
What are reserves?
The two goals commonly called the Federal Reserve's dual mandate.
What are price stability and maximum employment?
The policy in which the Fed communicates its intentions about future interest rates to influence expectations and borrowing decisions.
What is forward guidance?
The financial crisis during which the Fed expanded emergency lending and took extraordinary measures to support the financial system.
What is the 2007 to 2009 financial crisis?
The Fed's purchase and sale of Treasury securities tp adjust bank reserves and influence the federal funds rate, especially under a scarce-reserves system.
What are open market operations?
Under the hypothetical 10% reserve ratio, this is the simple deposit multiplier, assuming banks led all excess reserves and borrowers redeposit the funds.
What is 10 * (1+0.10)?
In an ample-reserve system, raising this administered interest rate helps the Fed increase the federal funds rate.
What is interest on reserve balances (IORB)?
The condition that limits conventional interest-rate cuts when the federal funds rate approaches zero, leading the Fed to use unconventional policies.
What is zero lower bound?
The unconventional policy in which the Fed purchases long-term Treasury and mortgage-backed securities to reduce long-term interest rates and stimulate aggregate demand.
What is quantitative easing (QE)?