ECON 2035 Study Guide - Midterm Guide: Demand Curve, Federal Reserve System, Irrational Exuberance
Document Summary
Origins: people were afraid of consolidaing power and distrusted the banks, bank panics led to central banks as a lender of last resort (federal reserve act of 1913) European central banks: structure similar to the fed, naional central banks control their budget and the budget of the ecb, governing council is similar to the fomc, less goal independent, long-term goal is price stability. Balance sheet of the fed: assets: securiies and loans to inancial insituions, liabiliies: currency in circulaion (c) and reserves (r, monetary base: sum of the fed"s liabiliies and the us treasury"s liabiliies. 3 players in the money supply process: the central banks: responsible for the conduct of monetary policy, banks: make loans, depositors: hold deposits in banks. Goals of monetary policy: price stability, low and stable inlaion, high employment/output stability, economic growth, interest rate stability, stability in foreign exchange markets. Inconsistency problem: being unable to consistently follow a good plan over ime.
