ECON211Exam3StudyGuide - ECON 211 Exam 3 Study Guide Monetary System Monetary Policy The Federal Reserve(the Fed The central bank of the United States

ECON211Exam3StudyGuide - ECON 211 Exam 3 Study Guide...

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ECON 211 Exam 3 Study Guide Monetary System & Monetary Policy The Federal Reserve (the Fed) The central bank of the United States Central bank Institution designed to -Oversee the banking system -Regulate the quantity of money in the economy Board of governors 7 members, 14-year terms Appointed by the president and confirmed by the Senate The chairman Directs the Fed staff Presides over board meetings Testifies regularly about Fed policy in front of congressional committees. Appointed by the president (4-year term) Understand how the Federal Reserve changes the federal funds interest rate The federal funds rate Interest rate at which banks make overnight loans to one another Lender - has excess reserves Borrower - needs reserves A change in federal funds rate Changes other interest rates The Fed: target the federal funds rate Open-market operations The Fed buys bonds Decrease in the federal funds rate Increase in money supply The Fed sells bonds Increase in the federal funds rate Decrease in money supply Understand the concept and measurement of money Money - a liquid asset (easily exchanged for goods & services) Store of value Unit of account0 Measuring the money supply M1: cash, currency, demand deposits (checking accounts) - these are narrow M2: Everything in M1 + savings deposits, small time deposits + money market mutual \funds + a few minor categories Understand how changing the federal funds rate also changes the money supply Be able to analyze the short-run and long-run impact of monetary policy on output, employment and prices Difference between the short-run impact of monetary policy and long-run money neutrality Economic outlook and how Fed formulates monetary policy decision
APLIA When the Fed conducts open-market purchases,

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