Aim: Can the Federal Reserve prevent the next depression?

Aim: Can the Federal Reserve prevent the next depression? DoNow:Write down at least three things you know about the Federal Reserve.

http://www.youtube.com/watch?v=w6whScvWn1RRM People feel that the economy suffers from intense highs and lows. Can the Federal Reserve control the economy prevent these highs and lows?

What is the Federal Reserve? Central bank of the United States Established in 1913 Created to ensure a stable economy for the nation 12 Reserve banks in the United States

Responsibilities of the Federal Reserve Conduct the nation’s monetary policy Supervise and regulate banking Operate a nationwide payments system The bank’s BANK.

FG12 Federal Reserve banks in the U.S

Monetary Policy Changes made to this policy affect the nation’s supply of money and credit This results in short and long term effects on the economy

Aspects of the Monetary Policy Discount rate: the interest rate determined by the Fed. Reserve to banks that borrow Reserve Requirements: the amount of money banks must keep on reserve at the Fed.

To make this easier... When there is inflation (economy is doing well), discount rates increase so there is less spending. Less people borrow and more people save. During deflation, discount rates decrease so more people spend. For example, the housing market does better during deflation because discount rates are low, which is a good time to buy.

Annemarie made $1,000 the last month working in retail. Should Annemarie put the money in the piggy bank or into a local bank? 0% Interest Rate 2% Interest

After 1 year Annemarie did not touch the $1,000 in her bank account. Why do you think it is a good idea for Annemarie to have put her $1,000 she made into the bank?

John wants to buy a new car. The car is on sale for $1,000 John does not have $1,000 for the car he would like. What should John do about this?

Fractional Reserve Is the practice whereby a bank retains only a portion of its customers' deposits as readily available reserves from which to satisfy demands for withdrawals. A fraction of one’s money on reserve If Annemarie’s interest is 2%, what would John’s interest rate be on his new car? Why?

Steve wants to take out a loan for $100,000,000 to invent a Smart Phone. How would Steve go about this?

The Federal Reserve is the “banks BANK” The federal reserve loan’s the bank’s money but the bank will be charged. This is called Discount rate Discount rate is the interest rate determined by the Federal Reserve to banks that borrow. Discount rate unofficially sets the interest rate for all bank in the United States.

Low Interest Rates Generally, low interest rates stimulate the economy because there is more money available to lend. Example: Consumers buy cars and houses. Businesses expand, buy equipment, etc. Why does the Fed lower interest rates? If inflation is in check, lower rates stimulate economic activity, thus boosting economic growth.

High Interest Rate The Fed raises interest rates as an effective way to fight inflation. Inflation—a sustained rise in the general price level; all prices are rising together. Consumers pay more to borrow money, dampening spending. Businesses have difficulty borrowing; unemployment rises.

Hw: Create a four paragraph essay explaining if the Federal Reserve can prevent another Great Depression.

What Caused The Great Depression? Break up into groups of 2 When you receive your document begin to read and underline the key factors you have found that deal with a cause in The Great Depression

Summary What is the Federal Reserve? How does the Federal Reserve regulate the economy?

Aim: Can the Federal Reserve prevent the next depression?