T HE F EDERAL R ESERVE, E CONOMIC C ONDITIONS AND I NTEREST Review!

T HE F EDERAL R ESERVE S YSTEM Decentralized “Central” Bank Established by an Act of Congress in 1913 when Woodrow Wilson was President Consists of the Board of Governors and 12 Federal Reserve District Banks Goals To establish and maintain the public’s confidence in our country’s banking system To maintain a stable and growing economy

T HE B ODIES OF THE F EDERAL R ESERVE Board of Governors Primary responsibility is conducting monetary policy Has 7 “governors” who are appointed by the President and confirmed by the US Senate No two of these governors can come from the same district Chairmen is Ben Bernanke 12 Federal Reserve District Banks Responsible for regulating the banks and providing them a supply of currency Banker’s Bank

12 F EDERAL R ESERVE D ISTRICTS

M ONETARY P OLICY To help ensure a stable economy Low unemployment Price stability Stable prices are directly impacted by the amount of money and credit in the economy (money supply)

M ONEY S UPPLY I MPACT As the Money Supply decreases… Demand for products and services decrease FED sells securities to decrease supply Could lead to RECESSION FED tries to avoid recession by increasing money supply and lowering interest rates Current Event! As the Money Supply increases… Demand for products and services increase FED buys securities to increase supply Could lead to INFLATION Inflation is defined as rise in goods and services in an economy over a period of time

E CONOMIC I NDICATORS Gross Domestic Product Total dollar value of goods and services produced in a county in one year “Standard of Living” US is one of highest in the world and is continuing to increase

Consumer Price Index Average price level of a fixed basket of goods and services purchased by consumers Measures rate of inflation Continues to rise Unemployment Number of people without jobs who are willing and able to work Impacts consumer spending Increased in 2009, steady in 2010, expected to decrease in 2011

E ARNING I NTEREST Simple Interest I=PRT Compound Interest