Download presentation
Presentation is loading. Please wait.
Published byJulie Chandler Modified over 9 years ago
1
The Fed Chapter 16
2
A Stronger Fed In 1935, Congress adjusted the Federal Reserve structure so that the system could respond more effectively to crises. In 1935, Congress adjusted the Federal Reserve structure so that the system could respond more effectively to crises. Today’s Fed has more centralized powers so that regional banks can work together while still representing their own concerns. Today’s Fed has more centralized powers so that regional banks can work together while still representing their own concerns.
3
Structure of the Federal Reserve System 12 District Reserve Banks Federal Open Market Committee 4,000 member banks and 25,000 other depository institutions Board of Governors
4
The Federal Open Market Committee (FOMC) The FOMC, which consists of The Board of Governors and 5 of the 12 district bank presidents, makes key decisions about interest rates and the growth of the United States money supply.The FOMC, which consists of The Board of Governors and 5 of the 12 district bank presidents, makes key decisions about interest rates and the growth of the United States money supply.
5
The Fed. Services Serves Government Serves Government Federal Government’s Banker Government Securities Auctions Issuing Currency Serves Banks Serves Banks Check Clearing Supervising Lending Practices Lender of Last Resort
6
Regulating Banking System Bank Examinations Reserves
7
Regulating Money Supply The Federal Reserve is best known for its role in regulating the money supply. Stabilizing the Economy Stabilizing the Economy The Fed monitors the supply of and the demand for money in an effort to keep inflation rates stable. The Fed monitors the supply of and the demand for money in an effort to keep inflation rates stable.
8
Money creation is the process by which money enters into circulation. Money Creation You deposit $1,000 into your checking account. Your $1,000 deposit minus $100 in reserves is loaned to Elaine, who gives it to Joshua. $100 held in reserve $900 available for loans Joshua’s $900 deposit minus $90 in reserves is loaned to another customer. At this point, the money supply has increased by $2,710. $90 held in reserve $810 available for loans
9
The Fed has three tools available to adjust the money supply of the nation. The first tool is adjusting the required reserve ratio. Reducing Reserve Requirements Reducing Reserve Requirements (increase money supply) (increase money supply) Increasing Reserve Requirements Increasing Reserve Requirements (Reduce money supply)
10
The discount rate is the interest rate that banks pay to borrow money from the Fed. Reducing the Discount Rate Reducing the Discount Rate (encourages more loans) Increasing the Discount Rate Increasing the Discount Rate (discourages loans) (discourages loans)
11
The most important monetary tool is open market operations. Open market operations are the buying and selling of government securities to alter the money supply. Bond Purchases (increase money supply) Bond Sales (decrease money supply)
12
Interest Rates and Spending If the Fed adopts an easy money policy, it will increase the money supply. This will lower interest rates and increase spending. This causes the economy to expand. If the Fed adopts an easy money policy, it will increase the money supply. This will lower interest rates and increase spending. This causes the economy to expand. If the Fed adopts a tight money policy, it will decrease the money supply. This will push interest rates up and will decrease spending. If the Fed adopts a tight money policy, it will decrease the money supply. This will push interest rates up and will decrease spending.
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.