Transcript Federal Reserve Monetary policy PowerPoint

Pyramid!!!!
You gonna make a pyramid!!!!
Build a pyramid
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You need to draw a pyramid with 3 levels
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The bottom level must have more than 12 small
sections.
The second level must have 12 sections, each
must be bigger than all of the sections on the
bottom level.
The top level must have two overlapping
sections,
Activator
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What do you notice about the pyramid at
the front of the room?
How could this possibly relate to
macroeconomics?
Do you participate in this pyramid in any
way?
The pyramid represents the Federal
Reserve System
The Federal Reserve System is more
commonly known as “The Fed.”
 The purpose of the FED is “To Furnish am
elastic currency and a more effective
supervision of banking in the United states
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Note the difference, not “the Feds”
How Does it achieve this purpose?
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Supervise member banks, holds cash reserves
for banks or the government, moves money
into and out of circulation.
It does this in order to try and stabilize the
money supply and banking system
What are the characteristics of the
FED?
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Lack of a single central bank
Ownership and control by member banks
Optional Membership in the FED for some
banks
So why were there rules to the levels
of the pyramid?
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There are 3 levels of the Federal reserve.
The top level is know as “The National
Level”
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It has the Board of governors which is 7 people
appointed by the president
Also has the Federal Open Market Committee
which contains the 7 members of the board plus
the president of the federal reserve bank of New
York and presidents 4 other district banks
The District Level
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Consists of 12 Federal reserve district
banks
They represent the 12 geographical
districts
What district are we? Where is the bank
located?
Local level
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These are the member banks
You and I bank with these banks, have
checking accounts and Savings accounts
What does the Fed do?
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Provides SERVICES TO BANKS
Clears checks
Provides loans to banks
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Seasonal disasters, financial emergency
What does the FED do?
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PROVIDES SERVICES TO THE GOVERNMENT
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Serves as the governments bank
Supervises the FEDS member banks
Regulates the money supply
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Money supply-amount of money circulating in the
economy
The fed enters money into the economy for two
reasons, to replace old notes and to increase
amount of money in the money supply
MONETARY POLICY
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The plan to expand or contract the money
supply to influence the cost and availability
of credit
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Basically, to increase or decrease aggregate
demand
Increasing money supply increases aggregate
demand and decreasing money supply
decreases aggregate demand
HOW DOES THIS INFLUENCE
THE BUSINESS CYCLE?
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How can increasing and decreasing the
money supply influence the business
cycle? When would the FED increase the
money supply and when would they
decrease it?
POP QUIZ ON VALENTINES!!
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WHAT HAS HAPPENED TO GDP OVER THE
LAST WEEK?
WHAT CATEGORY OF THE OUTPUT
EXPENDITURE MODEL CHANGED?
WAS THERE A CHANGE IN AGGREGATE
DEMAND OR AGGREGATE SUPPLY?
WHAT TYPE OF INFLATION COULD THIS
CAUSE? DRAW IT
HOW CAN THE FED EFFECT THE
ECONOMY
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The FED uses Monetary policy- increasing
and decreasing the money supply to
regulate spending
The Fed has four “tools” they use in doing
this.
THE FOUR TOOLS OF
MONETARY POLICY
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FOMC- SELLING AND BUYING BONDS
AND SECURITIES
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SELLING BONDS DECREASES THE MONEY
SUPPLY
BUYING BONDS INCREASES THE MONEY
SUPPLY
WHAT EFFECT DOES THE MONEY SUPPLY
HAVE ON AGGREGATE DEMAND AND GDP?
 Sell in expansion, buy in recession
The four tools
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The reserve requirement- The total percentage of
deposits a bank must keep inside it’s walls
High reserve requirements lower the money
supply’
Low reserve requirements increase the money
supply
How does this effect Aggregate demand and
GDP?
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High in expansion, low in recession
FOUR TOOLS
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DISCOUNT RATE- THE INTEREST RATE (FEE)
A MEMBER(LOCAL) BANK MUST PAY TO A
DISTRICT BANK FOR A LOAN
HIGH DISCOUNT RATES ENCOURAGE BANKS
TO HOLD MORE MONEY IN RESERVES
LOW DISCOUNT RATES ENCOURAGE BANKS
TO LOAN OUT MORE MONEY
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Low discount rate in recession, high in expansion
FOUR TOOLS OF MONETARY
POLICY
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INTEREST RATE OR PRIME RATE- The
interest rate or fee that a member (local)
bank customer must pay to receive a loan
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High interest rates discourage customers from
applying for loans
Low interest rates encourage customers to apply
for loans
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Low in recession, high in expansion
Activator
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See how many numbers on the back of
your pyramid organizer you can match to
the front. Basically, put the correct
numbers into the correct level, or list the
correct level next to the correct number.
Types of Monetary Policy
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Easy Monetary Policy- Increasing the
money supply to increase aggregate
demand and GDP. This is used to help
fight unemployment.
Types of Monetary Policy
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Tight Monetary policy- Decreasing the
money supply to slow GDP growth and
Fight Inflation.
Pop quiz 2!!!
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Name the four tools of monetary policy
Name one way the FED could expand the
money supply
Name one way the FED could contract the
money supply
Name the 3 levels of the FED