Federal Reserve
Definition
The Federal Reserve, often referred to as the "Fed," is the central banking system of the United States. It is responsible for conducting monetary policy, supervising and regulating banks, maintaining financial stability, and providing various banking services.
Analogy
Think of the Federal Reserve as a traffic controller at a busy intersection. It monitors and manages the flow of money (traffic) in the economy by adjusting interest rates, implementing policies, and intervening when necessary to ensure smooth functioning and prevent crashes (financial crises).
Related terms
Monetary Policy Tools: These are tools used by the Federal Reserve to implement monetary policy, such as open market operations, discount rate changes, and reserve requirements.
Quantitative Easing (QE): QE is an unconventional monetary policy where central banks buy long-term securities from commercial banks with newly created money. It aims to stimulate economic growth during times of recession or deflation.
Dual Mandate: The dual mandate refers to the two main objectives assigned to the Federal Reserve by Congress - price stability (low inflation) and maximum employment.
"Federal Reserve" appears in:
Subjects (2)
Study guides (3)
Practice Questions (14)
- Which of the following is a tool used by the Federal Reserve to conduct monetary policy?
- What is the role of the Federal Reserve in the context of the banking system?
- What would likely happen if the Federal Reserve increases the reserve requirement?
- What happens to the money supply when the Federal Reserve buys government bonds?
- When the Federal Reserve buys bonds in an open market operation, what happens in the money market?
- What role does the Federal Reserve play in the money market?
- What's the primary tool that the Federal Reserve uses to implement monetary policy?
- What does the Federal Reserve do when it wants to increase the money supply as part of its monetary policy?
- How does the Federal Reserve influence interest rates as part of its monetary policy?
- When the Federal Reserve decreases the reserve requirement, what's the effect on the money supply?
- What happens when the Federal Reserve sells government bonds as part of contractionary monetary policy?
- What's the purpose of the Federal Reserve's policy of paying interest on reserves held by banks?
- What's the effect of the Federal Reserve buying government bonds on the federal funds rate?
- What's the effect of the Federal Reserve's policy of quantitative easing on the money supply?
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