Mais conteúdo relacionado Semelhante a Chapter 4 the u.s. federal reserve and the creation of money (20) Chapter 4 the u.s. federal reserve and the creation of money2. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall2
Central Banks and Their Purpose
Monetary authority
Reserve banks
Many countries have central banks
European Central Bank
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Functions of Central Banks
Risk assessment
Risks reduction
Oversight of payment systems
Crisis management
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The Federal Reserve System
Board of Governors
Federal Reserve Banks
Member Banks
Federal Open Market Committee
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Instruments of Monetary Policy
Reserve Requirements
Open Market Operations
Open Market Repurchase Agreements
Discount Rate
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Reserve Requirements
Fractional Reserve Banking System
Required reserve ratio
Demand deposits
Time deposits
Total reserves
Required reserves
Excess reserves
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Open Market Operations
Fed purchases and sales of government securities
Fed purchases
Increase excess reserves
Increase new loans
Increase money supply
Fed sales
Decrease excess reserves
Decrease loans
Decrease money supply
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Open Market Repurchase Agreements
Repurchase Agreement
Fed buys securities from a seller who agrees to
repurchase them at a higher price
Reverse Repurchase Agreement
Fed sells securities and agrees to repurchase them at a
higher price
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Discount Rate
Rate charged on loans from the Fed’s discount
window.
Administratively set by Board of Governors
An increase in the discount rate discourages
banks from borrowing from the Fed
A decrease in the discount rate encourages banks
to borrow from the Fed
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Different Uses of Money
Unit of Account
Numeraire
Medium of Exchange
Currency and demand deposits
Store of Value
Time deposits
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Monetary Aggregates
Monetary Base: Currency in circulation
Currency and coins plus total reserves
M1 Money Supply
Currency plus demand deposits
M2 Money Supply
M1 plus short-term time deposits
M3 Money Supply
M2 plus long-term time deposits
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Money Multiplier
Process by which changes in bank reserves
generate larger changes in the money supply.
Size of Multiplier Influenced by:
Reserve requirement ratio
Public’s demand for cash
Banks’ willingness to make loans
Level of interest Rates
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Annual Rates of Growth of Monetary Aggregates
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The Money Supply Process in an Open
Economy
Foreign Exchange Market Intervention
The Fed’s purchase and sale of foreign
currencies
Purchase of foreign currencies
Increases monetary base
Reduces value of the U.S. currency
Sale of foreign currencies
Decreases monetary base
Increases value of the U.S. currency
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