Transcript The Federal Reserve “The Fed”

The Federal Reserve
“The Fed”
The Fed
•
•
The Federal Reserve is our nation’s bank
Their customers are:
1. The Government
2. Banks – Wells Fargo, Bank of America
History
• Federal Reserve Act of 1913
– Set up the Federal Reserve
– 12 independent regional banks
– Did not work because they were too
independent
• Restructured in 1935 as The Fed today
• Centralized banks: Banks work together
Structure of the Fed
• Board of Directors – Chairman is Ben
Bernanke
• In D.C.
• 14 year terms (appointed by the Pres.)
Structure cont.
12 District Banks
-monitor and report about its members
banks
Members Banks
-nationally chartered banks must join The
Fed
- FDIC
Functions of the Fed
• Serve Government
– Federal Governments bankers
– Sell bonds
– Issue currency
Functions
• Serve Banks
– Clear checks
– Supervise lending
– Lender of last resort ( lend banks $$$)
Functions
• Regulate Banks
– Control the money supply
– Bank examinations
Functions
• Regulate the money supply
– Stabilize the economy
– Lessen the negative effects of the business
cycles
– Control inflation/keep purchasing power
strong
3 Monetary tools to
expand/contract our economy
• Required reserve ratio (RRR)
– Amount that banks must keep from each
deposit
An increase in the RRR will cause a decrease
in the money supply(contract)
3 Monetary tools to
expand/contract our economy
• Discount Rate
– Interest rate The Fed charges banks to
borrow money
An increase in the discount rate will decrease
the money supply (contract)
3 Monetary tools to
expand/contract our economy
• Open Market Operations
– Buying and selling of govt. securities to alter
the supply of money
Buying will result in an increase in the money
supply (expand).
Fiscal Policy to help
expand/contract our economy
• Fiscal Policy – Controlled by the President and
Congress by taxing and spending (budgets)
• Expand the economy by decreasing taxes and
increasing government spending
• Contract the economy by increasing taxes and
decreasing government spending
• What is the purpose if the Govt imposes a
significant tax on alcohol?
– Decrease the supply of alcohol (tax incentive)