1. The Federal Reserve System
Organization

2. Creation of the Fed Central bank = a nation’s main monetary authority
Duties of a central bank
Holding reserves
Assuring stability
Lending money
The Federal Reserve is the US Central Bank

3. Structure of the Fed The country is divided into 12 districts
Each district has a district bank
Milwaukee is in the 7th district
Our district bank is in Chicago

5. Board of Governors Oversees the operations of the Federal Reserve
Chairman is Ben Bernanke

6. 7 members Chair Appointed by the president Confirmed by the Senate
Geographic restrictions
14 year staggered terms
No reappointment after serving a full term
Oversees the Fed
Sit on the FOMC
Chair
Appointed by president from among 7 governors
Confirmed by Senate
4 year term
Can be reappointed
Acts as spokesman for monetary policy for the country

7. Federal Open Market Committee FOMC
Controls the money supply

8. FOMC Duties Membership
Makes key decisions about interest rates and the money supply
Membership
4 District Bank Presidents serve rotating 1 year terms
Board of Governors
President of New York Federal Reserve Bank

9. Advisory Councils Each district has an advisory council
Made up of bankers, business owners, and others
Advises the district bank president on conditions within the district

10. Roles of the Federal Reserve
Services to banks:
Holds deposit accounts
Processes checks
Transfers funds
Makes loans
Regulates

11. Banker to the federal government
Pays bills
Sells government securities
Distributes currency
Manages the supply of money and credit

12. The Federal Reserve System
Tools for controlling the money supply

13. Reserve Requirement
Amount bank must hold in its vaults against the amount of checking account deposits
This amount is called the required reserves
It is expressed as a percentage
All additional reserves, called excess reserves can be used to make loans
Increasing the reserve requirement decreases the money supply
Decreasing the reserve requirement increases the money supply

14. Discount Rate
The interest rate charged by the Fed to lend money to banks
An increase in the discount rate results in a decrease in the money supply
Banks will borrow less and then have less to lend out
A decrease in the discount rate results in an increase in the money supply
Banks will borrow more and have more to lend out

17. Open Market Operations
Buying and selling government securities
Savings bonds
Treasury notes, bills, and bonds
Carried out by the New York Federal Reserve Bank
Buying = increased money supply
Selling = decreased money supply

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22. Impact of expansionary policy
If economy is sluggish (falling GDP), demand increases, production will be stimulated and unemployment reduced
If inflation is occurring due to cost-push factors and the economy is sluggish, the economy will be stimulated without increasing prices

23. Impact of contractionary policy
Effective when GDP is increasing and there is inflation
If economy is sluggish, it will make it worse
If inflation is occurring because of cost-push factors, it will have little effect on prices