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Actions of the Federal Reserve

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Presentation on theme: "Actions of the Federal Reserve"— Presentation transcript:

1 Actions of the Federal Reserve
Monetary Policy Actions of the Federal Reserve

2 Federal Reserve System
Functions Regulate and Supervise Banks Operate nations payment systems Establish and Implement monetary policy

3 What is Monetary Policy?
Actions to influence the amount of money and credit in the economy to promote economic growth and stability

4 Types of Monetary Policy
Easy Fixes problem of unemployment Puts money into the economy More money = more spending Tight Fixes problem of inflation Takes money out of the economy Less money = less spending

5 Federal Reserve Structure
Board of Governors Federal Reserve Banks Member Banks American People Securities Agencies

6 Open Market Operations
Monetary Policy Tools Tools Discount Rate Open Market Operations Reserve Requirement

7 Monetary Policy Tools Open Market Operations
buying and selling of government treasury bonds Bought from banks and security agencies Buy bonds: increase money supply (easy money policy) Fights contraction economy More money = more spending Sell bonds: decrease money supply (tight money policy) Fights inflation Less money = less spending

8 Monetary Policy Tools Reserve Requirement
percentage of customer deposits member banks are required to keep on hand. Lower requirements: increase money supply (easy money policy) Fights contraction economy More money = more spending Raise requirements: decrease money supply (tight money policy) Fights inflation Less money = less spending

9 Monetary Policy Tools Discount Rate
interest rate the Fed charges banks for loans Lower rate: increase money supply (easy money policy) Fights contraction economy More money = more spending Raise Rate: decrease money supply (tight money policy) Fights inflation Less money = less spending

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