chapter 15: the fed and monetary policy
member banks- commercial banks that are members of, and hold stock in, the Fed
bank holding companies- corporation that own one or more banks
regulation Z- Fed has the authority to extend truth-in-lending disclosures to millions of individuals who purchase or borrow from corporations, retail stores, automobile dealer, banks and lending institutions
currency- paper component of the money supply, is made up of Federal Reserve notes- fiat paper money issued by Federal Reserve banks and printing at the Bureau of Engraving and Printing*
coins- metallic forms of money- such as pennies, nickels, dimes, quarters, and the Sacagawea dollar coins*
monetary policy- expansion or contraction of the money supply in order to influence the cost and the availability of credit
fractional reserve system- which requires banks and other depository institution to keep a fraction of their deposits in the form of legal reverses
legal reverses- consist of coins and currency that depository institution holds in their vaults, plus deposits with Federal Reserve district banks*
reverse requirement- rule stating that a percentage of every deposit be set aside as legal reserves*
excess reverses- legal reverses in excess of the reverse requirements
liabilities- debts and obligations to others
assets- the properties, possessions, and claim on others
balance sheet- condensed statement showing all assets and liabilities at a given time
net worth- the excess of assets over liabilities, which is a measure of the value of a business
savings accounts and time deposits- interest- bearing deposits that cannot be withdrawn by check
(MBR)- deposit a member bank keeps at the Fed to satisfy reverse requirements
easy money policy- Fed allows the money supply to grow and interest rates to fall, which normally stimulates the economy
tight money policy- Fed restricts the growth of the money supply, which drives interest rate up
open market operations- buying and selling of government securities in financial markets
discount rate- interest the Fed charges on loans to financial institutions- is the third major tool of monetary policy
margin requirements- minimum deposits left with a stockbroker to be used as down payments to buy other securities, made much of the speculation possible
moral suasion- use of persuasion such as announcements, press releases, articles in newspapers and magazines, and testimony before congress
selective credit controls- credit rules pertaining to loans for specific commodities or purposes
prime rate- best or lowest interest rate commercial bankers charge their customers- reached 21.5%
monetize the debt- create enough extra money to offset the expansion of the money supply, making inflation worse
real rate of interest- market rate of interest minus the rate of inflation
M1- which represents the transaction components of the money supply, or the components of the money supply that most closely match money's role as a medium of exchange.
M2- measure of money that includes those components most closely conforming to money's role as a store of value