Ch 6.3 & 6.4 Fed Reserve

Priya, Hannah, and Liam are working in a bank as managers and they just received a notification that the Federal Reserve has changed the Discount Rate. What does this mean for their bank?

• 1. This is the amount of reserves that their bank is required to keep on hand.

• 1. This is the rate the Federal Reserve charges their bank for loans.

• 1. This is the interest rate that their bank charges other banks for loans.

• 1. These are the deposits that their bank keeps readily available as opposed to lending them out.

Luna, Evelyn, and Priya are economics students studying the Federal Reserve's influence on the economy. They are having a debate on the definition of Monetary Policy. According to you, what would be the correct definition?

• 1. The amount of reserves that banks like the one where Luna interned, are required to keep on hand.

• 1. The deposits that a bank, similar to the one where Evelyn's father works, keeps readily available as opposed to lending them out.

• 1. The process by which banks, such as the one Priya visited for her project, record whose account gives up money & whose account receives money as a result of a customer writing a check.

• 1. The actions that the Federal Reserve, which they are studying, takes to influence the level of real GDP and the rate of inflation in the economy.

Priya, Aria, and Mason are working on a school project about banking. They are trying to understand the concept of Reserve Requirement. What does it mean?

• 1. It refers to the deposits that their school bank keeps readily available as opposed to lending them out.

• 1. It is the amount of reserves that their school bank is required to keep on hand.

• 1. It is the interest rate that banks charge each other for those loans.

• It is the rate the Fed charges for those loans.

Avery, Sophia, and Nora are working on a school project about banking. They approach you, their bank manager, and ask, 'What does the term 'Reserves' refer to in banking?'.

• 1. The actions that the Federal Reserve takes to influence the level of real GDP and the rate of inflation in the economy.

• The amount of reserves that your bank is required to keep on hand.

• 1. The process by which your bank records whose account gives up money & whose account receives money as a result of a customer writing a check.

• 1. The deposits that your bank keeps readily available as opposed to lending them out.

John, Benjamin and Ethan's Check Clearing

• 1. The process John's bank uses to record whose account gives up money & whose account receives money when John, Benjamin and Ethan write a check.

• 1. The amount of reserves that John's bank is required to keep on hand.

• 1. A company that owns more than one bank, including John's.

• 1. The interest rate that banks, including John's, charge each other for loans.

Consider the scenario of a Bank Holding Company-

• The rate the Federal Reserve charges for those loans.

• 1. The amount of reserves that banks like Chase or Wells Fargo are required to keep on hand.

• 1. The interest rate that banks like Bank of America and Citibank charge each other for those loans.

• 1. A company like JPMorgan Chase & Co. that owns more than one bank.

You are a financial analyst studying the impact of the Federal Reserve's policies on the economy. You come across the term 'Federal Funds Rate'. What does it refer to?

• The rate the Federal Reserve charges for its loans

• 1. The process by which banks record the transfer of money as a result of a customer writing a check.

• 1. The interest rate that banks charge each other for loans.

• 1. The amount of deposits that a bank keeps readily available as opposed to lending them out.

Imagine you are studying the US economy. What does 'Money Supply' refer to in this context?

• 1. The amount you have to pay for borrowing money.

• 1. The interest rate set by the Federal Reserve for loans.

• 1. The term used to describe funds in checking accounts.

• The total amount of money available in the US economy.

You are an investor and you want to sell your assets quickly. What term describes this situation?

• 1. Money Supply

  2. All the money available in the US economy.

• Liquidity

  The ability of an asset to be converted into cash quickly

• Demand Deposits

  2. Funds that pool money from a large number of small savers to purchase short-term government and corporate securities.

• 1. Fractional

  2. A banking system that keeps only a fraction of funds on hand and lends out the remainder.

You are a bank manager. Your bank follows the Fractional Reserve Banking system. What does this mean?

• 1. Your bank keeps only a fraction of funds on hand and lends out the remainder.

• Your bank pools money from a large number of small savers to purchase short-term government and corporate securities.

• 1. Your bank charges other banks an interest rate for loans.

• 1. Your bank has borrowers that fail to pay back their loans.