1. Ch 12. The Federal Reserve System

2. Some Notes:  Open market operation: the buying and selling of government securities by the Fed.  Monetary policy: Changes in the money supply, or in the rate of change of the money supply, to achieve particular macroeconomic goals.

3. The Functions Of The Fed 1. Control the money supply. 2. Supply the economy with paper money (Federal Reserve Notes). 3. Provide check clearing services. 4. Hold depository institution’s reserves. 5. Supervise member banks. 6. Serve as the government’s banker. 7. Serve as the lender of last resort. 8. Serve as fiscal agent for the Treasury.

4. Fed Tools For Controlling The Money Supply By Open Market Operations  Open market purchase. the buying of government securities by the Fed.  Open market sale. the selling of government securities by the Fed.

5. How Open Market Operations Affect The Money Supply Fed Purchase Of Government Securities Increase Reserves Increase Money Supply

6. How Open Market Operations Affect The Money Supply (continued) Fed Sale Of Government Securities Decreases Reserves Decreases Money Supply