Основы экономики. Земскова Л.П. - 16 стр.

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16
Governors and 12 regional Federal Reserve banks regulate and supervise the
banks.
2. The Fed Open Market Committee (FOMC) is in charge of monetary
policy. It sets the discount rate and reserve requirements and, most important,
instructs the Open Market Desk on what open market operations to carry out.
3. Open market operations involve the purchase or sale of government
securities by the Fed. Such purchases or sales directly affect the money stock
because they lead to a change in currency or in deposits of buyers or sellers.
They also have secondary effects because they change the reserves of the
banking system and thus cause further adjustments.
4. The money multiplier tells us by how much a $1 open market operation
changes the money stock. In the United States today the money multiplier is
about 2.8.
5. High powered money is defined as currency outstanding plus bank deposits
at the Fed. The Fed completely controls the supply of high-powered money.
Through that control it can affect the money stock. Open market operations
have an impact on the money stock because they change the amount of high-
powered money, or monetary base, available for the banks and the public.
6. The money multiplier can and does change over time. Before the FDIC
(Federal Deposit Insurance Corporation), banking panics could lead to large
fluctuations in the multiplier. Today there is more stability. The FDIC insures
bank deposits. If your bank is insured by the FDIC, then even if the bank
were to go bankrupt, the FDIC would pay you the amount of your deposit.
7. Modern economies have fiat or fiduciary monetary systems. Until the
1930s, monetary systems of the major economies operated with gold at the
base of the system. Under the gold standard, the monetary base changed
only as a consequence of gold purchases or sales. If gold supplies in the
world grew slowly and smoothly, so would money and prices. In practice, the
main benefit of the gold standard was that there were no major inflations so
long as countries stayed on gold. That has led to some nostalgia for the gold
standard, but there is no serious possibility it will return.
8. Critics of the Fed have charged that it has allowed the money stock to grow
too rapidly and too erratically, thereby bringing about high inflation and too
much variability in economic activity. Fed monetary policy, in this view, has
aggravated rather than reduced macroeconomic instability.
9. A constant growth rate rule for money has been proposed as the right policy
for the Fed to follow. Although the Fed announces monetary growth targets,
it has not kept money growth constant or achieved its targets.
KEY TERMS
Lender of last resort
Board of Governors of the Federal Reserve System
Federal Open Market Committee (FOMC)
Open Market Desk
Required reserve ratio

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