Federal Reserve System and Monetary Policy By: Ben Spivey, Josh McGrady, and Henry Checo 1st Period

Federal Reserve System The Federal Reserve System was Founded in 1913 by president Woodrow Wilson. It was made to provide the nation with a safer, flexible, and more stable monetary and financial system.

Federal Reserve System Responsibilities They work to supervise and regulate banks and other financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to also protect the credit rights of consumers.

Federal Reserve and Maintaining Money Supply Open-Market operations consist of the buying and selling securities( such as treasury bills) from large banks and securities dealers, it increases the money supply in the hands of the public. The money supply decreases when the Fed sells a security. Basically, when the Fed is buying the public is selling and vice versa.

Consumer Legislation Consumer protection is a group of laws and organizations designed to ensure the rights of consumers as well as fair trade, competition and accurate information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors.

Managing money supply The FED regulates money supply in three ways Reserve ratios- Amount of deposited money banks are required to withhold and not lend, changing the amount of money circulating in the economy Discount rate- The interest rate that banks pay when the FED loans the bank money. The rate can be lowered/raised to decrease/increase the amount of circulating money Open-market operations- the buying and selling of government securities by the FED to increase/decrease the amount of money. Most powerful way of managing money

Maintaining the money supply and payments The Bureau of engraving and printing and the Bureau of the Mint produce currency and coins respectively and provide them to the FED for storage until they are needed. The FED works with multiple systems of payment such as electronic transfer to checks to ensure that payments are made on time and nothing is abused.

Regulating banks One of the FED’s responsibilities is to set rules for banking behavior and policies. The FED is tasked with watching, investigating, and checking on multiple banking agencies to make sure they are following the rules. The FED is also granted the authority of dictating the actions of state banks and bank holding companies

Vocab Federal Reserve System FED- privately owned, publicly controlled, central bank of the united states. Federal Reserve Notes- Paper currency issued by the FED Central bank- A bankers bank that can lend banks money Fractional reserve system- system requiring financial institutions to set aside a part of their deposits as reserves Monetary policy- actions by the FED to expand/contract money supply to affect credit.

Vocab continued Interest rate- the price of credit to a borrower. Open market operations- monetary policy in the form US treasury bills or bond sales and purchases. Discount rate- interest rate that the FED charges on loans to the nation's financial institutions. Easy money policy- policy that lowers interest and is associated with expansion. Tight money policy- policy that rises interest and is associated with expansion.

Monetary Policy Monetary policy is the process by which an authority figure controls the money supply in a certain area or country Money supply is controlled by adjusting the inflation rate or interest rate, rather than putting more or less money into circulation Monetary policies are divided into two groups, expansionary and contractionary. Expansionary policy helps promote rapid growth in money supply while contradictory promotes slower growth or even shrinkage.

Different types of monetary policies Monetary policies differ beyond just expansion or contraction, and there are multiple policies used to achieve a variety goals. Inflation targeting- policy which utilizes interest rates to keep inflation in a desired area. Price level targeting- similar to inflation targeting but with a more precise result. Monetary aggregates- policy that focuses on the collective sum of money. Fixed exchange rate- focuses on having a fixed exchange rate with a certain currency. Gold standard- policy which ties a currency's value to gold

Tools of monetary policies Monetary base- the FED can alter the monetary base to change policy. The FED can buy or sell bonds to change the amount of available currency in the bank as deposits. Reserve requirements- the FED can change the amount of money required to be held by banks as deposits and not given out to alter the amount of available money in circulation. Discount window lending- the FED uses this tool to allow smaller banks and other institutions to take money from the FED'S reserve to help with shortages of money. Interest rates- the FED can raise the charges on loans to discourage banks and others from withdrawing too much money.

Case Study In 2006, the Federal Reserve system partnered with the Brookings institution to examine the issue of concentrated poverty. The reports showed more than 16 different communities that were on the lower income status. This study proved that money needs to be issued to the poor people living poor communities, and that the policies that will be needed to bring the economic mainstream back. In the Richmond Fed District, this special report looks at the factors that give rise to high-poverty neighborhoods in West Greenville, NC and McDowell County, WV and the challenges they face