Transcript Structure of the Federal Reserve System

and its
Macroeconomics –
Chapter 16, Sections 1 & 2
Since the 1930’s our Government has
been required to carry out policies to
[1]
growth / GDP
maximize ___________
unemployment
[2] minimize ___________
inflation
[3] minimize ___________
There are two primary ways to
accomplish these goals:
[1]
Fiscal
________
Policy
Monetary Policy
[2] __________
Fiscal Policy is carried out by ....
Congress
The
(1) __________ & (2) _________
President
Monetary Policy is carried out by our
Central Bank – in the US called ...
The Fed =
The Federal Reserve System
The Fed was established in 1913 &
restructured in 1935 to ...
[1] aide expansion of US businesses by
supplying more cash, and
[2] be a source of emergency cash in
case of a panic
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Structure of the Federal Reserve System
7-member
Board of
Governors
(including Chair of Board)
12 District
Reserve Banks
4000 private
bank members
who benefit from
membership
The Federal Reserve System is comprised
of 12 regional banks with 25 branches.
This man served as Chair of the
Board for 18 years.
Alan
Greenspan
_______________
This man was sworn
in as our new Chair
on Jan 31, 2006.
Ben
Bernanke
_______________
The Fed is constantly monitoring the
health of the USA economy.
The Fed is owned by its 12-member
government
banks, NOT the USA ____________
 high degree of independence.
B/c Fed officials aren’t elected, the
Fed most often acts with the best
interests of the country in mind,
unlike politicians who have to worry
re-elected
about being __________.
Functions of the Fed:
[1]
to serve as the bank of
the US Gov’t
[2] to regulate its member banks
[3]
to serve as a lender of last
resort for member banks
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Functions of the Fed:
[4] to issue new currency
coins are minted at the
US Mint part of the
Dept of Treasury (gov’t)
new paper currency is
printed by the Fed and
first issued by the Fed
Reserve Banks
Functions of
the Fed:
[5]
to clear
checks
Functions of the Fed:
[6]
to set the supply of
money in the economy
[7] to set a key interest rate – the
discount rate – the rate at
which the Fed loans money to
banks
Banks we use are private businesses
... they set their own rates
Our new car loan rates range from 6.74% to 13.74%
APR. To obtain the lowest annual percentage rate, you
must have excellent credit history, .... (Dec. 2008)
Annual Percentage Rates (APR) As Low As ....
New car 5.30%
Used car (franchise dealer) 5.85%
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but ...
Used car (private party) 8.34%
but ... the rate at which banks loan
money to us is strongly impacted by the
discount rate – the rate at which the Fed
loans to private banks.
$
discount rate – the
rate at which the
Fed loans to banks
$
$
$
$
Fed Reserve
Bank of New
York
$
$
federal funds rate –
the rate at which
banks loan to each
other over night
commercial paper –
overnight loans
between banks
These decisions are made by
the 14 members of the
Federal Open Market
Committee (FOMC). The
FOMC meets 8 times per year
at the Washington DC Fed.
The Fed has 2 tools to carry out
Monetary Policy to help control the
economy
[1]
money
set the supply of _______
discount
set
the
________
rate – the
[2]
interest rate at which they loan
money to banks
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Let’s say we’re suffering
from terrible inflation (a
bad inflation rate is
>5
inflation ____%).
The Fed uses it tool of setting
money supply.
The Fed will
increase
decrease
money supply in order to drive
prices down.
Let’s say we’re suffering
from high unemployment
(our natural rate of
5
unemployment is 4
__ -- __%).
The Fed uses it tool of setting the
discount rate.
The Fed will
increase
decrease
the interest rate in order to get
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consumers & investors to spend more money
Let’s say we’re suffering
from a recession (our average
annual rate of GDP growth is
3
___%).
The Fed uses it tool of setting the
discount rate.
The Fed will
increase
decrease
the interest rate in order to get
consumers & investors to spend more money
start Chapter 16, Section 1 & 2 notes
Chapter 16, Sections 1 & 2 – The Fed &
Monetary Policy
________(date)
 The Fed – The Federal Reserve
System – is the USA’s central bank
 The Fed constantly monitors the
economy & uses monetary policy to
correct problems
continue Chapter 16, Section 1 & 2 notes

Functions of the Fed:
[1] loan money to and regulate
private banks
[2]
clear checks
[3] print & issue new paper currency
[4] set the money supply
[5] set the discount rate – interest
rate charged to private banks
continue Chapter 16, Section 1 & 2 notes

[1]
Monetary Policy
increase or decrease MS
(money supply)
MS   inflation 
MS   inflation 
[2] increase or decrease i (interest rate)
i   borrowing   spending  
growth   employment 
borrowing   spending  
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growth   employment 
i
Once the Fed designs
its “Federal Reserve
Note” it is signed by
the Treasurer of the
U.S.
Anna Escobedo
Cabral – 42nd
Treasurer of the
USA Summer, 2007
Newly-designed “5”
had not been released
and she told us that it
would be the color
________.