1. 3 GOALS OF EVERY ECONOMY PROMOTE ECONOMIC GROWTH CONTROL UNEMPLOYMENT
CONTROL INFLATION
3 GOALS OF EVERY ECONOMY

2. Federal Reserve and Monetary Policy
Impacting the Economy

3. What is the Federal Reserve
Created by the Federal Reserve Act of 1913
central bank for the United States of America
An independent organization within the government
What is the Federal Reserve

4. Duties of the Federal Reserve
Holds reserves of banks to control the money supply
Assures stability in the national banking and monetary systems
Regulates and supervises banks
Controls the way money is issued and circulated
Lends money to private banks and the government
Duties of the Federal Reserve

5. What is the structure of the Federal Reserve?
Board of Governors
7 Members
Federal Open Market Committee
Advisory Councils
(Federal, Consumer, Thrift Institutions)
Federal Reserve Banks
12 District
25 Branches
Member Banks
What is the structure of the Federal Reserve?

6. Structure of the Federal Reserve
Board of Governors:
7 members appointed by the President and approved by the Senate
Serve one 14-year term
Supervise the operations of the Fed
Set policy for the Fed
President selects the Chairman and Vice-Chairman from the appointed members
Chairman is most influential member as serves as spokesperson for the Fed (Ben Bernanke)
Structure of the Federal Reserve

8. Structure of Fed: District Banks
Twelve District Banks
Carry out the policy established by the Board of Directors
Meets the needs of their particular regions
Structure of Fed: District Banks

9. Structure of the Fed: Member Banks
All nationally chartered banks are automatic members
State chartered banks can apply for membership
Must purchase stock in their district banks
Structure of the Fed: Member Banks

10. Structure of Fed: Federal Open Market Committee
Supervises the sale and purchase federal government securities
12 voting members (includes the Board of Governors, president of the Fed. Reserve Bank of New York, and presidents of four other district banks)
Structure of Fed: Federal Open Market Committee

11. Structure of the Fed: Advisory Councils
3 committees provide advice directly to Board of Governors
Federal Advisory Council
Consumer Advisory Council
Thrift Institutions Advisory Council
Structure of the Fed: Advisory Councils

12. Monetary Tools of the Fed
Fed has three tools that are used to affect the money supply and influence the economy
Open Market Operations
Adjusting the Reserve Requirement (RRR)
Adjusting the discount rate
Monetary Tools of the Fed

13. Open Market Operations
Fed sells government bonds to raise the federal funds rate causing a decrease in the excess reserves and lending and contraction of the money supply
Fed buys government bonds and securities to decrease the federal funds rate causing an increase in excess reserves and lending and an expansion of the money supply
Open Market Operations

14. Adjusting the Reserve Requirement
The Fed raises the RRR requiring banks to hold more in reserve causing a decrease in lending and contracting the money supply
The Fed lowers the RRR requiring banks to hold less in reserve causing an increase in lending and expanding the money supply
Adjusting the Reserve Requirement

15. Adjusting the Discount Rate
Fed raises discount rate, banks borrow less and have fewer reserves to lend causing a contraction of the money supply
Fed lowers discount rate, banks borrow more and have more reserves to lend causing an expansion of the money supply
Adjusting the Discount Rate

16. Monetary Policies Expansionary (easy money) policy
Used during a slow-down in the economy
Buys bonds on the open market
Lowers the reserve requirement
Reduces the discount rate
Monetary Policies

17. Monetary Policies Contractionary (tight-money) policy
Used during an expanding economy
Sells bonds on the open market
Increases reserve requirement
Increases the discount rate
Monetary Policies