ECON 311: CHAPTER 14 VOCAB EXAM 4
25 Cards in this Set
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central bank
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the government agency that oversees the banking system and is responsible for the conduct of monetary policy
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Banks
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the financial intermediaries that accept deposits from individuals and institutions and make loans
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Depositors
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individuals and institutions that hold deposits in banks
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Monetary Base
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the sum of the Fed's monetary liabilities (currency in circulation and reserves) and the U.S. Treasury's monetary liabilities (treasury currency in circulation, primarily coins)
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Currency in circulation
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the amount of money in the hands of the public...this is a liability of the Fed
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Reserves
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consist of deposits at the Fed plus currency that is physically held by banks (called vault cash because it is stored in bank vaults)...these are assets for banks but liabilities for the Fed
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Required Reserves
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reserves that the Fed requires banks to hold
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Excess Reserves
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additional reserves the banks choose to hold
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government securities
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category of assets that covers the Fed's holding of securities issued by the U.S. Treasury
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discount loans
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banks borrowing from the Fed, or borrowed reserves
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discount rate
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the interest rate charged to banks for discount loans
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high-powered money
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another term for monetary base which equals MB = C + R
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open market operations
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when the Fed exercises control over the MB through its purchases or sale of government securities in the open market as well as its extension of discount loans to banks
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open market purchase
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purchase of bonds by the Fed; when this increases, the MB also increases by the amount of the purchase
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open market sale
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sale of bonds by the Fed; when this increases, the MB decreases by the amount of the sale
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non-borrowed monetary base
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is under the Fed's control, because it results primarily from open market operations; it is the monetary base minus banks borrowings from the Fed (discount loans which are also known as borrowed reserves)
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multiple deposit creation
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when the Fed supplies the banking system with $1 additional reserves, deposits increase by a multiple of this amount - a process called...
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simple deposit multiplier
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change in total checkable deposits = required reserve ratio (1/r) x change in reserves
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all excess reserves are gone
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for the banking system as a whole, deposit creation will stop only when...
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positively
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The money supply is ________ related to the non-borrowed monetary base (MBn)
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positively
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the money supply is ________ related to the level of borrowed reserves (BR)
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negatively
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the money supply is ______ related to the required reserve ratio (r)
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negatively
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the money supply is ________ related to currency holdings
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negatively
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the money supply is ________ related to the amount of excess reserves
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money multiplier
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tells us how much the money supply changes for a given change in the monetary base (its always larger than 1)
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Econ 311: Test 1