1. Standard
SSEMA2- Explain the role and function of the Federal reserve

2. Federal Reserve
Created in 1913 as the nation’s first true central bank
Central bank: bank that can lend to other banks in times of need

3. Purpose of the Federal Reserve
They regulate how much money is flowing in the nation’s economy at any point in time.
This control of the money supply is called monetary policy.
It is completely independent of the executive and legislative branches.

4. Regional District Banks
Organization
Board of Governors
FOMC
Regional District Banks
Member Banks

5. Board of Governors Elected by the President and approved by the Senate
They serve 14 year terms and a new member is elected every 7 years
Ben Bernanke is the chairman

6. Federal Open Market Committee
This part of the Fed is responsible for overseeing open market operations ( buying and sell of US treasury bond)

7. District banks
There are 12 district banks who accept the other banks deposits and make loans to banks

8. Member Banks
Member banks: privately owned banks who own shares of stocks in the Federal Reserve System
These banks are governed by the Fed.
The Fed

9. Monetary Policy
This is how the Fed controls the money supply and it can also make loans to member banks
Money Supply= deflation and falling production
Money Supply = Inflation

10. Tools of Monetary Policy
Open Market Operations
Changes in the Discount Rate
Changes in the Reserve Requirement

11. Open Market Operations
The Fed sells or buys US government securities (bonds) to influence the money supply.

12. Changes in Discount Rate
The discount rate is the interest the Federal Reserve charges on its loans to banks.
Fed fund rate: Rate banks charge each other to borrow.

13. Reserve Requirement
This is the minimum percentage of deposits that banks must keep on reserve to back up the checking accounts.

14. Money Policy Easy/Loose Money Policy: 1. Increase the Money supply
2. Decrease interest rates
3. During Recession/Contraction
Tight Money Policy:
1. Decrease Money Supply
2. Increase Interest Rates
3. During Expansion/ controlled growth

15. Effects of Monetary Policy
Controls Inflation
Control Interest Rates
Create jobs
Control Credit