Chapter 13 Section 4

Question 1

intermediation

Answer 1

-the term used to describe the flow of deposits into lending institutions, thereby creating a mortgage money supply

Question 2

disintermediation

Answer 2

-when depositors bypass traditional depository institutions and withdraw from accounts with low fixed interest rates, transferring those funds to alternative investments with higher interest rates such as the stock market, mutual funds, artwork, etc

Question 3

5 parts of federal reserve system

Answer 3

-board of governors
-twelve federal reserve banks and their branches
-the federal open market committee
-federal advisory council
-member banks

Question 4

board of governors

Answer 4

-seven members appointed by president and confirmed by congress
-terms of 14 years
-chairperson of fed’s term overlaps presidential terms
-board sets the reserve requirements for member banks reviews and approves discount rate actions, sets ceilings on interest rates, and issues regulations

Question 5

three tools of board of governors to assist in regulation of money supply

Answer 5

-reserve requirement
-discount rate
-open market operations

Question 6

reserve requirement

Answer 6

-a percentage of the money on deposit in a bank that cannot be used for lending purposes and must be transferred to a district federal reserve bank

Question 7

discount rate

Answer 7

-the rate of interest that is charged by the federal reserve to a member bank on funds loaned is called the discount rate

Question 8

open market operations

Answer 8

-the federal open market committee (FOMC) meets regularly throughout the year to review the state of the economy
-its actions can greatly influence the course of events in the country & world