Chapter 14: Who doesn\'t the Federal Reserve service too? Why is the Federal Res

Question

Chapter 14: Who doesn't the Federal Reserve service too? Why is the Federal Reserve an independent agency? What started the financial crisis of 2007-2008? - What are the functions of money? - What is the "official" name of our paper money? - What makes up M1 money? - What makes up M2 money? - What is the largest component of M1 money? What backs our money in the US? When was the Federal Reserve created? Chapter 15: Understand how a balance sheet works. - What makes up a bank's net worth? - Define fractional reserve banking - How much money can a bank lend out? - How does a bank get money if they fall below their reserves? - Define the federal funds market - How do banks create/destroy money? - Define the federal funds rate - What makes up reserves in a commercial bank? What are assets in a commercial bank? Chapter 16: - What are the jobs of open market operations? - Who conducts the monetary policy in the US? - What are the 4 main tools of monetary policy? Which of the "lags" are least likely to affect monetary policy? - Define the Taylor rule - How does the federal funds rate compare to other interest rates? - How can the fed discourage banks from loaning money? What new monetary policy was introduced in 2008? - Which tool of the monetary policy is important for day to day operations? Define the discount rate

Explanation / Answer

Chapter 14

a. The main function of Federal Reserve Bank is price stabilization by controlling the amount of money supplied in the economy.

b. To avoid any government interference and debates on growth versus inflation in the economy, The Fed is an independent agency and is not under nay government influence.

c. It was caused by the housing bubble due to selling of Mortgage backed Securities by some non financial institutions.

d. The main function of money is medium of exchange. It is also standard of deferred payment Money also acts as unit of account and store of value.

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