federal reserve

  1. money multiplier
    • the amount of money the banking system generates with each dollar of reserves
    • the money multiplier is the reciprocal of the reserve ratio
    • r=1/10 so multiplier is 10
    • the higher the reserve ratio the less of each deposit the banks loan out and the smaller the money multiplier
  2. fractional reserve banking
    banking systems in which banks hold only a fraction of deposits as reserves
  3. open market operations
    the purchase and sale of US bonds by the fed; tool of monetary policy most often used by fed
  4. discount rate
    interest rate on loans that the fed makes to banks
  5. required reserve ratio
    minimum amount of reserves banks must hold against deposits; decrease in reserves increasea money supply
  6. FDIC
    Federal Deposit Insurance Corporation guarantees the safety of deposits at most banks
  7. bank run
    people get scared and withdraw all their money from the bank
Card Set
federal reserve
reserves and open market