Understanding Monetary Policy

Monetary Policy

the controlling of the supply of money and the cost of borrowing money (credit), according to the needs of the economy

The Federal Reserve Bank (the Fed)

The central bank of the US. Loans money to private banks and sets interest rates.

Reserve System

banks keeping (reserving) a certain percentage of their deposits in the Federal Reserve Banks

Deficit

when government spends more money than it collects.
(money going out is called expenditures, money coming in is called revenue)

Today's Terms

• monetary policy
• the Fed
• reserve system
• deficit

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