Monetary policy tools (chapter 3)
Money creation: the process by which money enters into circulation.
Money multiplier formula: amount of new money that will be created with each demand deposit.
Excess reserves: in banking, reserves of cash more than the required amounts
Prime rate: rate of interest banks charge of short term loans to their best customers .
Required reserve ratio: ratio of reserve to deposit required of banks by the federal reserve.
Open market operations: buying and selling of government securities to alter the supply of money
The federal reserve tracks the amount of money in circulation.