| A | B |
|---|
| Causes for the Panic of 1907 | (1)No system for expanding money in circulation (2)system of pyramided reserves failed |
| Purpose/Role of the Fed | (1)Supervise member banks (2)Hold cash reserves (3)Move money into or out of circulation |
| Characteristics of the Fed | (1)Relies on district banks to carry out its banking policies **Has flexibility to design policies to meet their district’s need** (2)U.S. Government doesn’t own stock in the Fed.—independent—does report to Congress (3)Nationally chartered banks are required to join—state-chartered banks have the option to join or not to join |
| Organization of the Fed | (1)Made up of Board of Governors, (2)FOMC (3) 12 reserve banks |
| Goals of the Fed | (1) Provides services to banks (2) Provides services to the government |
| monetary policy | plan to expand or pull back (contract) the money supply in order to influence the cost and availability of credit |
| M1 | (1)Simplest measure (2)Used by economists that believe the money supply should consist of easily accessible funds (3)value of all currency in circulation + value of traveler’s checks + all checking accounts in financial institutions |
| easy money policy | (1)Fed charges banks a lower interest rate to borrow money (2)Results makes more money available to those banks (3)Usually adopted during a recession (4)Helps boost the economy |
| tight money policy | (1)Slows business activity and helps to stabilize prices (2)Usually adopted if Fed believes inflation (demand pull) is likely to happen (3)Characterized by higher interest rates |
| If Fed lowers interest rates to member banks | banks charger lower interest rates to customers and customers demand more goods--aggregate demand increases |
| If Fed raises interest rates to member banks, | Banks charge higher interest rates to customers, customers delay buying goods and services--aggregate demand decreases |
| 3 components of monetary policy | (1)Open-Market Operations (2)The Discount Rate (3)The Reserve Requirement |
| prime rate | the interest rate that commercial banks charge on loans to their best customers |
| 5 challenges/obstacles the Fed faces | (1)Economic Forecasts (2)Time Lags (3) Priorities and Trade-offs (4)Lack of Coordination (5)Conflicting Opinions |
| 4 Reasons for Growth of Government | (1)Population Growth (2)Changing Public Attitudes (3)Rising Standard of Living (4)National Emergencies |
| 4 Purposes for Government Regulation | (1)Regulate Businesses (2)Provide Public Goods (3)Promote Economic Well-Being (4)Stabilize the Economy |
| privatization | the handling of government services by private businesses |
| transfer payments | when the government takes money collected from one group of citizens and distributes to—transfers it—to another group of citizens |
| Examples of Federal Regulary Agencies | IRS, EPA, FDIC, FDA |
| 4 Effects of Government Regulation | (1)prices are affected, (2)services are affected, (3)profits are affected and (4)productivity is affected |
