chapter 34.1
Slang for the language Federal Reserve Board Chairs use
What is Fedspeak
The Fed's inflation target percentage
What is 2%
Federal funds rate
What is the interest rate at which banks lend money to each other
Define foreward guidance
What is "providing information about the future course of monetary policy in order to influence market expectations of future interest rates"
The Fed's dual mandate goals
The tool the Federal Reserve uses to influence the economy
What are interest rates
Importance of hitting the inflation target
What is promoting maximum sustainable employment
Reserve requirements
What is a minimum amount cash that each bank must have
QE meaning
What is quantitative easing, when the Fed purchases longer term government bonds in order to lower interest rates in the long run
_________ is important for macroeconomic stability
What is central bank independence
The instructions congress gave to the Federal Reserve
What is "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates".
Neutral real interest rate
What is when the real GDP is equal to potential GDP and the output gap is zero
What is influencing or shifting federal funds rates
Cause and effect of bank runs
What is everyone runs to the bank to pull their money out, causing the bank to not meet reserve requirements and possibly fall into bankruptcy
Overnight market
What is short term loans that the lendee needs to repay at the beginning of the next business day
Three questions Fed members must be prepared to answer in a FOMC meeting
What are "What are your forecasts for the US economy, What are the right policy choices given the economic outlook, and How should the Fed communicate its plans effectively to the public?"
The Fed rule of thumb (aka the Taylor Rule)
What is (federal funds rate - inflation)=(neutral real interest rate + 1/2)x(inflation - 2%) + output gap
The benefit of overnight lending
What is banks with surplus cash lend to banks with a cash deficit to maintain reserve requirements
Preventer of bankruptcy after a bank run
What is lender of last resort, when the Fed lends money to banks if they are unable to get a loan from anywhere else
Legislature that requires banks to stand on sounder financial footing
What is Dodd-Frank
The 12 banks that make up the Federal Reserve?
What is Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco
4 tools the Fed uses to influence the federal funds rate
What is "paying interest to banks on excess reserves, borrowing money overnight from financial institutions, lending directly through the discount window, and buying and selling government bonds"
Reason that big financial institutions take bigger risks
What is they expect to be bailed out by the Fed, oftentimes leading them to take bigger and bigger risks, therefore increasing the likeliness of a financial crisis occurring
The impacts of changing Federal Funds rate on the rest of the economy
What is percolates through to other interest rates, changes the value of consuming today vs tomorrow, changes the value of the USD