The Fed&Central Banks
What is Federal Reserve?
This is the name of the central banking system of the United States, established in 1913
When the Fed wants to slow down inflation, it does this to interest rates
raise them
What is it decreasing?
when overall prices rise over time, this is happening to your purchasing power.
What is fiscal policy?
involving taxes and spending
What is Aggregate Demand (AD)?
When people buy more goods and services in an economy, this curve shifts to the right.
What is the main goal of Federal Reserve?
The Fed's main job is to keep prices stable and achieve this other major economic goal.
When the Fed wants to boost a slow economy, it does this to interest rates.
lower them
What is inflation?
a sustained rise in the overall price level
What is expansionary fiscal policy?
If the government cuts taxes and increases spending to boost the economy, this type of fiscal policy is being used.
What is the interest rate?
When the money supply increases, this price of borrowing money tends to go down.
What is borrowing and spending?
When the economy is struggling, the Fed can lower interest rates to encourage people and businesses to do more of this.
What is spend?
Lower interest rates make it cheaper to borrow money, which encourages consumers to do more of this
What is deflation?
If prices are falling across the whole economy over time, this condition is occurring
What is the banking system?
Monetary policy works mainly through this system, by making it cheaper or more expensive to borrow.
What is Aggregate Supply (AS)?
The total volume of goods and services that firms in an economy are willing and able to sell at a given price level during a specific period
What are open market operations?
When the Fed buys or sells government bonds to control the money supply, this policy tool is being used.
What is the federal funds rate?
This is the name of the key short-term interest rate that the Fed targets
What is the money supply?
This is the term for the total amount of money circulating in an economy, which the Fed monitors and influences through its policy tools.
What is monetary policy?
the strategic action taken by a nation’s central bank (such as the Federal Reserve) to manage the money supply, control interest rates, and influence economic growth.
What is buying goods and services (transactions)?
In the money market, the demand for money goes up when people need more cash for this everyday activity
What is to control the money supply and manage monetary policy?
Unlike commercial banks that serve customers, this is the primary role of a central bank in an economy
What is contractionary monetary policy?
If inflation is running too high, the Fed raising rates is an example of this type of monetary policy.
What is excess money supply (or demand-pull inflation)?
This occurs when too much money chases too few goods, causing prices to rise rapidly - the classic explanation for what causes inflation
What is stimulating economic growth?
Both fiscal and monetary policy share this common goal during a recession.
What is the equilibrium price level?
This is the overall price level where Aggregate Supply and Aggregate Demand meet