Chapter 16 section 3

Monetary policy tools

Money creation:

Is the process by which money enters into circulation

Required reserve ratio:

Ratio of reserves to deposits required of banks by the a Federal Reserve

Money multiplier formula:
the amount of new money that will be created with each demand deposit

Excess reserves:
reserves greater than the required amounts

Prim 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

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