Board of Governors
The seven-member board that overseas the Federal Reserve System
Monetary Policy
The actions the Federal Reserve takes to influence the level of real FDP and the rate of inflation in the economy
Federal Reserve Districts
The twelve banking districts created by the Federal Reserve Act
Federal Advisory Council (FAC)
The research arm of the Federal Reserve
Federal Open Market Committee (FOMC)
Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply
Check Clearing
The process by which banks record whose account gives up money and whose account receives money when a customer writes a check
Bank Holding Company
A company that owns more than one bank
Federal Funds Rate
Interest rate banks charge each other for loans
Discount Rate
Rate the Federal Reserve charges for loans to commercial banks
Net Worth
Total assets minus total liabilities
Money Creation
The process by which money enters into circulation
Required Reserve Ratio (RRR)
Ratio of reserves to deposits required of banks by the Federal Reserve
Money Multiplier Formula
Amount of new money that will be created with each demand deposit, calculated as 1/RRR
Excess Reserves
Reserves greater than the required amounts
Prime Rate
Rate of interest banks charge on short-term loans to their best customers
Open Market Operations
The buying and selling of government securities to alter the supply of money
Monetarism
The belief that the money supply is the most important factor in macroeconomic performance
Easy Money Policy
Monetary policy that increases the money supply
Tight Money Policy
Monetary policy that reduces the money supply
Inside Lag
Delay in implementing monetary policy
Outside Lag
The time it takes for monetary policy to have an effect