Key Terms

Key Terms

Click on each key term to review its definition. (19)

Central Bank

Institution which conducts a nation’s monetary policy and regulates its banking system.

Contractionary Monetary Policy

A monetary policy that reduces the supply of money and loans.

Discount Rate

The interest rate charged by the central bank on the loans that it gives to other commercial banks.

Excess Reserves

Reserves banks hold that exceed the legally mandated limit.

Expansionary Monetary Policy

A monetary policy that increases the supply of money and the quantity of loans.

Federal Funds Rate

The interest rate at which one bank lends funds to another bank overnight.

Inflation Targeting

A rule that the central bank is required to focus only on keeping inflation low.

Open Market Operations

The central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates.

Quantitative Easing (QE)

The purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand.

Reserve Requirement

The percentage amount of its total deposits that a bank is legally obligated to either hold as cash in their vault or deposit with the central bank. (1)