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.

Comment Stream