Understand why depositing cash on a checking account does not affect money supply immediately.
Understand why when a commercial bank buys government securities from its clients, new money is being created?
Understand why when Fed buys government securities from commercial banks money creation potential is expanded.
What is the money multiplier? How can a banking system increase money supply by a multiple of its excess reserves?
What is the required reserve ratio and how does it affect excess reserves of a bank?
Understand the two components of the demand for money?
Why is money supply curve vertical and not upward sloping like a standard supply curve?
What is the federal funds market and federal funds rate?
What is the discount rate?
What do we mean by saying that Fed targets a specific federal funds rate?
Explain how through open-market operations Fed can reduce/increase federal funds rate.
Explain how through changing discount rate/required reserve ratio Fed can reduce/increase federal funds rate.
What are the tools of restrictive/expansionary monetary policy?