ECO3041 - Ch 14 Monetary Policy

ECO3041 - Ch 14 Monetary Policy - Department of Economics,...

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Department of Economics, FIU Chapter 14 Notes Monetary Policy Prof. Dacal
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Chapter 14 Notes Chapter 14 Monetary Policy Monetary policy is the use of money and credit controls to influence macroeconomic activity. I. The Federal Reserve System Federal Reserve Bank The regional Fed banks perform many critical services, including the following; Clearing checks between private banks Holding bank reserves Providing currency Providing loans Developing macroeconomic models and economic reports. Board of Governors 7 individuals with a 14 year term, they are appointed by the president and confirmed by the U.S. Senate. The Fed Chair The Chairman is selected four year term individual who is appointed by the president. II. Monetary Tools The basic tools of monetary policy are: Reserve requirements Discount rate Open-market operation 2 | P a g e
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Chapter 14 Notes Reserve requirements Required reserve is the minimum amount of reserves a bank is required to hold by government regulation. Denoted by Required reserves = deposits total reserves bank ×total deposits By changing the reserve requirements, the Fed can directly alter the lending capacity of the banking system. Excess reserve is bank reserves in excess of required reserves.
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This note was uploaded on 01/22/2012 for the course ECO 3041 taught by Professor Dacal during the Fall '11 term at FIU.

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ECO3041 - Ch 14 Monetary Policy - Department of Economics,...

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