What are the Feds goals The Feds goals are to promote Stable monetary and

What are the feds goals the feds goals are to promote

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What are the Fed’s goals?
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What does the Fed do?The Fed’s major activity is conducting _____________ policy through…1.Open market operations (primary method)2.Setting discount rate3.Setting reserve requirement ratio
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What does the Fed do?
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Open Market Operations Banks trade excess reserves held at FRBs among themselves. Interest rate on one-day interbank loans is ______ _______rate. Federal Open Market Committee (FOMC): All Board of Governors, President of Federal Reserve Bank of New York (FRBNY), and Presidents of 4 other FRBs on rotating basis Has met 8 times a year since 1980 FOMC influences fed funds rate
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Open Market Operations ____________ sets the target fed funds rate (policy directive) Federal Reserve Trading Desk at FRBNY makes necessary transaction If FOMC wants to decrease fed funds rate, then Trading Desk makes ____________ If FOMC wants to increase fed funds rate, then Trading Desk makes ____________
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Open Market Purchase Trading Desk buys Treasury securities from a bank Where does the money come from? The Fed essentially prints the money Trading Desk receives Treasuries and pays bank by adding to its reserves Bank now has ______ excess reserves that can lend to other banks With greater supply of excess reserves, fed funds rate _______
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Open Market Purchase Now that banks can more easily meet reserve requirements (at a lower cost), banks have ________ funds to lend to households and firms Households use new loans for consumption and firms use new loans for expansion Once they repay their loans, they add to their deposits at their banks Economy expands as money supply ________ (in theory)
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Open Market Sale Trading Desk sells Treasury securities to a bank The Fed essentially takes the money and money supply contracts Trading Desk subtracts from the bank reserves Bank now has _______ excess reserves that can lend to other banks. With smaller supply of excess reserves, fed funds rate ________. Banks have fewer funds to lend to
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Discount Rate ___________ ________ is interest rate FRBs charge on loans to banks in their districts FRBs loan money to financial institutions through __________ __________ , usually for emergencies Fed can influence level and price of reserves by changing discount rate Fed rarely changes it because no guaranteed effect, yet a change is a signal
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Reserve Requirements ____________ _______________
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Monetary Base Monetary base: Currency in circulation and reserves (depository
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