1. Chapter 15 - The Federal Reserve

2. Janet Yellen

3. Structure of the FED
Board of Governors- 7 members appointed by the President and confirmed in the Senate with a SM vote
They serve 14 year terms
one appointment becomes vacant every two years for reasons of experience
job is to supervise and regulate the FED
FOMC (Federal Open Market Committee) - 7 members of the Board of governors and 5 presidents of member banks
They decide monetary policy

5. 12 FED Banks

6. Check-Clearing

7. Monetary Policy
The expansion or contraction of the money supply to influence the cost and availability of credit
In other words, how easy will money be available?
Will fluctuate the availability of money based on economic factors (inflation, unemployment, GDP)

8. 3 tools of monetary policy
Changing the discount rate - the rate at which the FED lends money to members banks
To raise it makes borrowing more expensive for banks and less likely for them to extend credit (money supply contracts)
To lower it makes borrowing less expensive for banks and more likely for them to extend credit (money supply expands)

9. 3 tools of Monetary Policy
Open Market Operations- the buying and selling of US Treasury bonds
When bonds are bought by the FED, checks written by the FED add to reserves, expanding the money supply
When bonds are sold by the FED, checks written by buyers subtract from reserves, contracting the money supply

10. 3 Tools of Monetary Supply
Reserve Requirement- The percentage of customer deposits a bank must hold as cash in reserve (in their vaults)
The FED can raise the R.R. (banks must hold a larger percentage of deposits as cash, reducing available funds to lend out; this contracts the money supply)

11. 3 Tools of Monetary Policy
The Fed can lower the R.R. (banks can hold a smaller percentage of customer deposits
To find out total amount of money created with a single deposit, the equation is
deposit amount X R.R.

12. Easy Money vs. Tight Money Policy
Easy money policy is the expansion of the money supply by making credit less expensive to obtain
Tight money policy is the contraction of the money supply by making credit more expensive to obtain

13. Other Monetary Policy Tools
Moral suasion- communication between banks, the government, and citizens
Selective Credit controls- rules on who can borrow money

14. All Content Created by DJ Cook