The Federal Reserve System “the Fed”. Reference Chapter 11. 12 Federal Reserve Districts. Commercial banks’ banker. Board of Governors. Board of Governors. 7 members appointed by president approved by Senate 14 yr. term chairman Ben Bernanke formerly Alan Greenspan.
The Federal Reserve System“the Fed”
Reference Chapter 11
Commercial banks’ banker
Bureau of Engraving and Printing
reserves at the Fed + vault cash =total reserves
Why is changing the money supply important?
TO CONTROL INFLATION and/or UNEMPLOYMENT
11.1 page 292
1. Federal Open Market committee: major decision maker in the FRB.
2. Federal Reserve System : US Central Bank
3. Board of Governor’s : controls and coordinates fed activities (7 members)
4. Reserve account: funds required to be held in the FRB
Describe the structure of the Federal Reserve System.
7 member Board of Governors
appointed by president, ratified by Senate
14 year term, chairman
In what year was it founded?
The Money Creation Process
Think of our banking simulation for fractional reserve banking
“Fed” Tools for Changing the Money Supply
Monetary policy has two basic goals:
to promote "maximum" sustainable output and employment
to promote "stable" prices
The three tools are interactive
Raising the interest rate influences how much banks will decide to borrow from the fed (who will lend them money “out of thin air”, increasing money supply)
Keeping the discount rate low encourages borrowing
When the federal funds rate is lower than the discount rate, who would you borrow from?
When the discount rate is lower than the federal funds rate, who would you borrow from?
2006 discount rate - 6.25%
federal funds rate - 5.25%
What is the Fed trying to do?
Complete 11.3 Section Review, p. 306 # 2-4