1. The Federal Reserve

2. Purpose of “The FED” The Nation’s Central Bank Control Money Supply Regulate the Economy Through Monetary Policy The Government’s Banker Holds Reserves for Banking Institutions Intervene in Foreign Exchange Rate Market Lender of Last Resort Check Clearing Process

4. Fractional Reserve Banking Reserves- deposits held by district banks

5. Types of Reserves Legal Reserves- deposits allowed to legally be held Required Reserves- Amount set by Board of Governors Excess Reserves- difference between legal and required reserves Required Reserve Ratio-% of total deposits Fed requires member banks to hold

6. Bank’s Balance Sheet Assets –Total Reserves Required Excess –Loans Liabilities –Checkable Deposits –Page 366-372

7. Open Market Operations http://static.seekingalpha.com/uploads/2008/12/21/saupload_clipboard01_8.jpg Quantitative Easing

8. The FOMC Board of Governors + 5 Reserve Bank Presidents If the “FED” buys government securities from banks then a banks total reserves increase allowing the bank to loan out more money (Expansionary) If the “FED” sells government securities from banks then a banks total reserves decrease forcing the bank to loan out less money (Contractionary)

9. The Money Multiplier: Growing Money Money Multiplier= 1/ required reserve ratio Actual Change in Money Supply = money multiplier * change in total reserves

10. The Discount Rate The most transparent of FED actions The FED acting as a lender of last resort Difference between discount and federal funds rate Rate agreed upon every 6 weeks by the board of governors led by Chairman Ben Bernanke

11. Monetary Tools Methods used to implement monetary policy Required Reserve Ratio Changing the Discount Rate Buying/Selling Government Securities Expansionary PolicyContractionary Policy

12. Impact of Expansionary Monetary Policy on the Money Market

13. Equation of Exchange and the Quantity Theory MV= PQ M= money held by non banking public V= velocity of money- # of times money unit is spent see www.wheresgeorge.com P= price level Y= real gdp

14. Monetary Policy Websites http://www.federalreserveeducation.org/FRED/ (History and Structure- plus games!) http://www.economicadventure.org/index.cfm (Created by Boston Federal Reserve Bank) http://www.ny.frb.org/education/fedchal.html (The Fed Challenge) http://www.frbsf.org/publications/federalreserve/monetar y/index.htmlhttp://www.frbsf.org/publications/federalreserve/monetar y/index.html (The Fed explains monetary tools and policy) Plenty of ACDC Leadership Videos