by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are Excess Reserves?Banks are legally required to hold a minimum level of reserves, but no rule prohibits them from holding additional excess reserves above the legally mandated limit. For example, during a recession banks may be hesitant to lend, because they...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Bank Regulation?A safe and stable national financial system is a critical concern of the Federal Reserve. The goal is not only to protect individuals’ savings, but to protect the integrity of the financial system itself. This esoteric task is usually behind...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are the Functions of Money? Money solves the problems that the barter system creates. The functions of money include: Medium of Exchange Store of Value Unit of Account Standard of Deferred Payment What is a Medium of Exchange? First, money serves as a medium of...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Monetary Policy affect Aggregate Demand? Monetary policy affects interest rates and the available quantity of loanable funds, which in turn affects several components of aggregate demand. Tight or contractionary monetary policy that leads to higher interest...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Central Banks Carry Out Monetary Policy? Central Banks carry out monetary policy through setting the overnight interest rate, setting bank capital reserve requirements, and other techniques (such as quantitative easing) to manage the money supply in the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Deposit Insurance? To protect against bank runs, Congress has put two strategies into place: deposit insurance and the lender of last resort. Deposit insurance is an insurance system that makes sure depositors in a bank do not lose their money, even if the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is a Bank Run? Back in the nineteenth century and during the first few decades of the twentieth century (around and during the Great Depression), putting your money in a bank could be nerve-wracking. Imagine that the net worth of your bank became negative, so...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Bank Supervision? Several government agencies monitor banks’ balance sheets to make sure they have positive net worth and are not taking too high a level of risk. Within the U.S. Department of the Treasury, the Office of the Comptroller of the Currency...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How is the Federal Reserve Bank Organized? Unlike most central banks, the Federal Reserve is semi-decentralized, mixing government appointees with representation from private-sector banks. At the national level, it is run by a Board of Governors, consisting of seven...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Banking System? Money, loans, and banks are all interconnected. Money is deposited in bank accounts, which is then loaned to businesses, individuals, and other banks. When the interlocking system of money, loans, and banks works well, economic transactions...
