Test 3 Notes

Test 3 Notes - Test 3 Notes 3.28.08 GDP.06-just as expected...

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Test 3 Notes 3.28.08 GDP-.06-just as expected Core PCE-2.0 in Feb Market bond price and interest rate = inverse relationship I. Fed-Federal reserve system-central bank head a. Dec 1913-established the Fed, revamped in 1935 after the great depression b. 12 Federal Reserve banks (FRB)-12 districts i. On the front of the one dollar bill, inside the word “one” is a number that represents a district and in the center of the black seal there’s a letter-corresponds to a number. E=5 c. Districts –North to South, East to West. i. 6 in North East-great lakes area because there is more economic activity ii. They have branch banks to help II. Board of Governors a. 7 members-nominated by the president and ratified y the senate. b. Full tern is 14 years-the end of January in even years-no reappointment. c. Appointment of people is beyond government d. Jim Bunning voted against Ben Bernanke-KY-‘06-‘20 e. Chairman?-must be a member of BoG-one is nominated and ratified as chairman-45 year renewable tern ad is concurrent with tern on BoG. Greenspan filled out a remaining term and then did his own term. 3.31.08 The BoG watches over the 12 FRBs. 7 members of the BoG and 5 heads of FRBs make up the FOMC I. FOMC a. Policy making arm of Fed. b. Sets target for FF rate (I ff )-monetary policy c. Every president from 12 FRBs goes to FOMC eventually. d. Always NYC-every other bank alternate on a 3 year basis i. 2008-NY, CHI, DAL, MIN, PHIL ii. 2009-NY, CHI, ATL, RICH, SF iii. 2010-NY, CLE, BOS, KC, STL II. Tools of Monetary Policy a. Open market Operations (OMO)-the Fed’s tool to regulate monetary policy-controlled by the FOMC b. Reserve requirements-set by BoG-banks have a bank account at the Fed reserve-the reserve requirement is minimum balance in their account c. Discounting-both FOMC and BoG-Fed reserve lending reserves to bank in the US. The interest rate is the discount rate. d. The chair ultimately controls everything III. Structure of the Fed a. Est. 1913, no FOMC, no OMO b. Government set reserve requirements c. Fed Reserve Board-pre-BoG-very little power-only controlled discounting d. Rates were set independently by each bank IV. European Central Bank (EBC) a. Based on the Fed b. European system of central banks-ecb.int c. 15 national central banks-1 per euro country d. 27 countries in system-15 use the euro
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e. To use euro, they must apply for acceptance into the zone and for currency f. All countries have their central bank-kind of like branch banks g. Executive board i. BoG like-6 members-Pres, VP, and 4 appointed members (8yr non-renewable terms) h. ECB meets in Frankfort, Germany i. Monetary policy making body=government council—FOMC-like—has 21 member: 6exec board, 15 national banks presidents i. Meets monthly (12 times/year)-no formal vote at meets-doesn’t release minutes and no press release-they have a press conference after the meetings help by the President and VP and they answer questions ii. Why? If a policy is bad for one country and they find out the president voted for it they can get in
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Test 3 Notes - Test 3 Notes 3.28.08 GDP.06-just as expected...

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