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The Federal Reserve System. Ch. 15. 15.1. Describe the structure of the Federal Reserve System. The FED. It affects us ALL!!! owned by its member banks.

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The federal reserve system

The Federal Reserve System

Ch. 15

J. Johnson SP09


15.1

  • Describe the structure of the Federal Reserve System.

J. Johnson SP09


The fed
The FED

  • It affects us ALL!!!

  • owned by its member banks.

  • The Board of Governors establishes policies for the Federal Reserve and member banks to follow, regulates certain operations, and controls the money supply.

  • The 12 Federal Reserve district banks and 25 branch banks are located near the commercial banks they serve.

J. Johnson SP09


J. Johnson SP09



Regulatory responsibilities
Regulatory Responsibilities

  • Monitors member banks’ reserves.

  • Oversees foreign banks operating in the United States as well as the international operations of U.S. member banks and holding companies operating abroad.

  • Approves bank mergers.

  • Responsible for check clearing.

J. Johnson SP09


J. Johnson SP09


15 1 quiz
15.1 Quiz

  • 1) ____ __ ________ establishes policies for the Federal Reserve and member banks to follow, regulates certain operations, and controls the money supply.

  • 2) The ___ Federal Reserve district banks and ____ branch banks are located near the commercial banks they serve.

  • 3) _____ _____ _____ ____makes decisions about the growth of the money supply.

  • 4) What does it mean to be a member of FDIC?

  • 5) Name 1 regulatory responsibility of the FED

J. Johnson SP09


15.2

  • Describe the use of fractional reserves.

  • Understand the tools used to conduct monetary policy.

J. Johnson SP09


Monetary policy
Monetary Policy

  • The most important job of the fed is…..

  • Monetary policyis the expansion or contraction of the money supply in order to influence the cost and availability of credit.

    • Changes interest rates whenever the economy’s health is threatened.

J. Johnson SP09


Did u no
DID U NO?

  • Every piece of paper money issued in the United States has the name of one of the 12 Federal Reserve banks on it. Most money in a region will bear the name of the closest Federal Reserve bank.

J. Johnson SP09


Fractional bank reserves
Fractional Bank Reserves

  • Requires that member banks keep a certain percentage of their deposits in the form of legal reserves.

  • Every time a bank customer makes a deposit, the bank must set aside a portion of the deposit as reserves.

  • Banks earn money by lending out that portion of their deposits that need not be held as reserves.

J. Johnson SP09


J. Johnson SP09


Fractional reserves and monetary expansion
Fractional Reserves and Monetary Expansion percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.

  • A system of fractional reserve banking allows banks to make a large volume of loans.

  • A change in the money supply = the change in reserves/reserve requirement.

J. Johnson SP09


Tools of monetary policy
Tools of Monetary Policy percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.

  • The Fed can affect the money supply by changing the reserve requirement.

    • Can affect the money supply by buying and selling government securities (open market operations).

    • can affect the money supply by changing the discount rate, the interest rate the Fed charges on loans to financial institutions.

    • can affect the money supply by changing margin requirements.

    • can affect the money through moral suasion and selective credit controls.

J. Johnson SP09


Let s review
Let’s Review percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.

Describethe relationship between the reserve requirement, reserves, and the size of the money supply.

A) The reserve requirement determines the amount of legal reserves a bank has to keep, which then determines how much money a bank can lend and the size of the money supply.

J. Johnson SP09


Describe percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.the three major tools of monetary policy.

A) The three major tools of monetary policy are reserve requirements, open market operations, and the discount rate.

J. Johnson SP09


15.3 percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.

  • Explain how monetary policy affects interest rates in the short run. 

  • Identify the two major definitions of money. 

  • Describe how interest rates are affected by political pressure.

J. Johnson SP09


Short run impact
Short-Run Impact percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.

  • In the short run, monetary policy affects interest rates and the availability of credit. In the long run, it affects inflation and economic growth, which is one of the Fed’s major concerns.

  • Change in money supply = affects interest.

J. Johnson SP09


Long run
Long Run percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.

  • Changes in the money supply affect the general level of prices.

  • Monetizing the government’s debt = creating enough extra money to offset deficit spending in order to prevent interest rates from changing.

  • The real rate of inflation is the market rate of interest minus the rate of inflation.

J. Johnson SP09


Other monetary policy issues
Other Monetary Policy Issues percent more for its loans than the rate of interest it pays for its saving accounts and time deposits, interest bearing deposits that cannot be withdrawn by check.

  • A tight monetary policy can hurt some industries, like homebuilding and automobiles, more than other industries.

  • High interest rates encourage people to forgo consumption today and increase their savings.

  • Low interest rates encourage people to borrow money today, which will reduce their ability to consume in the future.

J. Johnson SP09


J. Johnson SP09


The politics of interest rates
The Politics of Interest Rates deposits, and other checkable accounts.

  • The FED = Independence

  • Political Pressure to lower interest rates.

  • PRES and Congress pick new BofG.

J. Johnson SP09


Chapter 15 assessment
Chapter 15 Assessment deposits, and other checkable accounts.

  • KEY TERMS and REVIEWING FACTS on page 434

J. Johnson SP09


17.1 deposits, and other checkable accounts.

  • Explain the importance of international trade in today’s economy.

  • Describe the basis for international trade.

  • Explain why total world output increases when countries specialize to engage in trade.

J. Johnson SP09


J. Johnson SP09


Complete
COMPLETE: deposits, and other checkable accounts.

  • Graphic Organizer on pg. 467

J. Johnson SP09


The u s and international trade
The U.S. and International Trade deposits, and other checkable accounts.

  • Exports—the goods and services that it produces and then sells to other nations.

  • Nations trade because they believe the products they receive (imports) are worth more than the products they sell (exports).

J. Johnson SP09


The basis for trade
The Basis for Trade deposits, and other checkable accounts.

  • Absolute advantage:

    • whenever it is able to produce more of a given product than another.

  • comparative advantage

    • Each country must produce more of the good in which it has a comparative advantage and then exchange the extra output for the extra output of its trading partners

J. Johnson SP09


17.2 deposits, and other checkable accounts.

  • Explain how international trade can be restricted to protect special interests.

  • Cite the main argument used in support of protection.

  • Relate the history of the free trade movement.

J. Johnson SP09


Restricting international trade
Restricting International Trade deposits, and other checkable accounts.

  • Major ways of restricting trade:

    • tariff- tax placed on imports, and a quota, a limit on the quantities of a product that can be imported.

    • Protective tariff- one that is high enough to protect less efficient domestic industries.

    • Revenue tariff- one high enough to generate revenue.

J. Johnson SP09


J. Johnson SP09


The free trade movement
The Free Trade Movement prices high for domestic producers.

  • Trade barriers work only if other countries do not retaliate, causing all countries to suffer.

  • The World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA) are examples of international agencies for promoting freer trade.

J. Johnson SP09


17.3 prices high for domestic producers.

  • Explain how foreign currency is used in trade. 

  • Describe the problem of a trade deficit and the main solution to the problem.

J. Johnson SP09


Complete the following venn diagram
Complete the Following prices high for domestic producers.Venn-Diagram

J. Johnson SP09


Foreign exchange
Foreign Exchange prices high for domestic producers.

  • Foreign exchange is the buying and selling of the currencies of different nations. 

  • The foreign exchange rate is the price of one country’s currency in terms of another country’s currency.

  • USD GBP CAD EUR AUD

  • USD 1 1.98 1.00 1.47 0.88

  • GBP 0.50 1 0.51 0.74 0.44

  • CAD 0.99 1.96 1 1.46 0.87

  • EUR 0.67 1.34 0.68 1 0.59

  • AUD 1.13 2.24 1.14 1.67 1

  • 1/2/08

J. Johnson SP09


J. Johnson SP09 prices high for domestic producers.


  • Exchange rates are fixed or flexible. prices high for domestic producers.

  • Fixed = No Change in Rate.

  • Flexible exchange rates, commonly used today, establish the value of each currency through the forces of supply and demand.

J. Johnson SP09


Trade deficits and surpluses
Trade Deficits and Surpluses prices high for domestic producers.

  • a trade deficit or surplus depends in part on the international value of its currency.

  • A weaker dollar buys fewer foreign goods.

  • QUESTION TIME:

    • When would it be most economical for Americans to travel abroad: when the dollar is weak or when it is strong? Why?

J. Johnson SP09


Fill in missing boxes
Fill in missing boxes prices high for domestic producers.

J. Johnson SP09


J. Johnson SP09 prices high for domestic producers.


J. Johnson SP09


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