Weitere Ă€hnliche Inhalte Ăhnlich wie Chapter 4 the u.s. federal reserve and the creation of money (20) KĂŒrzlich hochgeladen (20) Chapter 4 the u.s. federal reserve and the creation of money2. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall2
Central Banks and Their Purpose
ïMonetary authority
ïReserve banks
ïMany countries have central banks
ïEuropean Central Bank
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Functions of Central Banks
ïRisk assessment
ïRisks reduction
ïOversight of payment systems
ïCrisis management
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The Federal Reserve System
ïBoard of Governors
ïFederal Reserve Banks
ïMember Banks
ïFederal Open Market Committee
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Instruments of Monetary Policy
ïReserve Requirements
ïOpen Market Operations
ïOpen Market Repurchase Agreements
ïDiscount Rate
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Reserve Requirements
ïFractional Reserve Banking System
ïRequired reserve ratio
ïDemand deposits
ïTime deposits
ïTotal reserves
ïRequired reserves
ïExcess reserves
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Open Market Operations
ïFed purchases and sales of government securities
ïFed purchases
ïIncrease excess reserves
ïIncrease new loans
ïIncrease money supply
ïFed sales
ïDecrease excess reserves
ïDecrease loans
ïDecrease money supply
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Open Market Repurchase Agreements
ïRepurchase Agreement
ïFed buys securities from a seller who agrees to
repurchase them at a higher price
ïReverse Repurchase Agreement
ïFed sells securities and agrees to repurchase them at a
higher price
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Discount Rate
ïRate charged on loans from the Fedâs discount
window.
ïAdministratively set by Board of Governors
ïAn increase in the discount rate discourages
banks from borrowing from the Fed
ïA decrease in the discount rate encourages banks
to borrow from the Fed
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Different Uses of Money
ïUnit of Account
ïNumeraire
ïMedium of Exchange
ïCurrency and demand deposits
ïStore of Value
ïTime deposits
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Monetary Aggregates
ïMonetary Base: Currency in circulation
ïCurrency and coins plus total reserves
ïM1 Money Supply
ïCurrency plus demand deposits
ïM2 Money Supply
ïM1 plus short-term time deposits
ïM3 Money Supply
ïM2 plus long-term time deposits
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Money Multiplier
ïProcess by which changes in bank reserves
generate larger changes in the money supply.
ïSize of Multiplier Influenced by:
ïReserve requirement ratio
ïPublicâs demand for cash
ïBanksâ willingness to make loans
ïLevel of interest Rates
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Annual Rates of Growth of Monetary Aggregates
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The Money Supply Process in an Open
Economy
ïForeign Exchange Market Intervention
ïThe Fedâs purchase and sale of foreign
currencies
ïPurchase of foreign currencies
ïIncreases monetary base
ïReduces value of the U.S. currency
ïSale of foreign currencies
ïDecreases monetary base
ïIncreases value of the U.S. currency
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