POSC 476 Lecture Notes - Lecture 5: Fractional-Reserve Banking, Federal Reserve System, Open Market Operation
1 Oct 2018
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Document Summary
Maintain stability of financial system, provide certain financial services. Seven-member board of governors, one chairperson and vice-chairperson: banking practice fractional reserve banking all must by law keep some reserve requirements. If fed raises reserve requirement, money supply will decrease, interest rates will increase: monetary moves changes in reserve requirements. Open market operations: monetary policy in action: when recession is underway- increase growth in money supply acquire bonds, decrease the reserve requirements. Time lag between policy implementation and effects on economy means. Fed must try to anticipate the future: foreign exchange: need to exchange currency to make international transactions. Units of exchange rates matter than acceptability (hard or soft currency), change over time: the federal reserve system, often referred as "the fed," is the central bank of the united states. Imf adopts modified version of gold standard, boasted recovery, trade, investment, strengthened alliances.
