Define the following terms and explain their importance to the study of macroeconomics

Question

a. central bank
b. Federal Open Market Committee
c. supply of money
d. monetary policy

Answer 1

a. A central bank is a government institution that controls the money supply and serves as a banker for commercial banks. The central bank of the United States is the Federal Reserve System, established in 1913.
b. The Federal Open Market Committee (FOMC) is made up of the seven governors of the Board of Governors, the president of the Federal Reserve Bank of New York, and four presidents from the other eleven district banks. The FOMC is responsible for open market operations (and, therefore, the most important component of monetary policy).
c. The supply of money is determined by the Fed and the willingness of banks to make loans. The money supply is influenced by Fed policy that includes open market operations, discount rate changes, and changes in required reserve ratios.
d. Monetary policy is the manipulation of the money supply and interest rates by the Federal Reserve System. The principal objectives of monetary policy are stable prices and economic growth.