1. Please turn to page 397 in the text book, read the profile on Ben Bernanke and answer the four questions. 1.What does the Federal Reserve Bank do? 2.As Chairman of the Fed, what is Ben Bernanke’s job? 3.What is the difference between inflation and deflation? 4.From where did Ben Bernanke receive his degrees in economics?

3. SSEMA2 The student will explain the role and functions of the Federal Reserve System.  a. Describe the organization of the Federal Reserve System.  b. Define monetary policy.  c. Describe how the Federal Reserve uses the tools of monetary policy to promote price stability, full employment, and economic growth.

4. hat is the Fed? SSEMA2-What is the Fed?  The nation’s first true central bank

5. hat is the Fed? SSEMA2-What is the Fed?  The nation’s first true central bank

6. hat is the Fed? SSEMA2-What is the Fed?  The nation’s first true central bank

7. hat is the Fed? SSEMA2-What is the Fed?  Created in 1913

8. hat is the Fed? SSEMA2-What is the Fed?  Created in 1913

9. hat is the Fed? SSEMA2-What is the Fed?  National banks required to be member

10. hat is the Fed? SSEMA2-What is the Fed?  State banks eligible to be a member

11. hat is the Fed? SSEMA2-What is the Fed?  Privately owned Publicly operated

12. hat is the Fed? SSEMA2-What is the Fed?  Federal Reserve Notes (gold standard 1913-1934)

13. hat is the Fed? SSEMA2-What is the Fed?  The nation’s first true central bank  Created in 1913  National banks required to be member  State banks eligible to be a member  Privately owned Publicly operated  Federal Reserve Notes (gold standard 1913-1934)

14. Please turn to page 397 in the text book, read the profile on Ben Bernanke and answer the four questions. 1.What does the Federal Reserve Bank do? 2.As Chairman of the Fed, what is Ben Bernanke’s job? 3.What is the difference between inflation and deflation? 4.From where did Ben Bernanke receive his degrees in economics?

15. SSEMA2 The student will explain the role and functions of the Federal Reserve System.  a. Describe the organization of the Federal Reserve System.  b. Define monetary policy.  c. Describe how the Federal Reserve uses the tools of monetary policy to promote price stability, full employment, and economic growth.

16. Today’s Essential Question …  How is the Federal Reserve organized?

19. a. Describe the organization of the Federal Reserve System. The Federal Reserve System consists of: Chairman  Chairman and Vice Chairman are nominate by the President and confirmed by the Senate who serve a 4 year term

21. a. Describe the organization of the Federal Reserve System. The Federal Reserve System consists of: Board of Governors  (7 members nominated by President and confirmed by Senate are located in Washington, DC)  Full term is 14 years

23. a. Describe the organization of the Federal Reserve System. The Federal Reserve System consists of: Federal Open Market Committee (FOMC),  includes the Board of Governors and presidents of some of the regional Fed banks  The FOMC decides monetary policy.

26. a. Describe the organization of the Federal Reserve System. The Federal Reserve System consists of: 12 regional Fed banks, located around the U.S.  Board of Directors are compromised of 1/3 elected by Board of Governors  2/3 of directors are elected by privately owned banks  Each district is a private organization financed by interest held on various types of securities

28. Structure of the Fed  Board of Governors (regulatory and supervisory group) 14 year terms 14 year terms General policies General policies Annual Report to Congress Annual Report to Congress Monthly Public Bulletin Monthly Public Bulletin

29. Structure of the Fed  12 Districts, 25 Branches

30. Structure of the Fed  Federal Open Market Committee (FOMC) (the Fed’s primary monetary policy body) How does the money supply grow? How does the money supply grow? Where are interest rates set? Where are interest rates set? 12 voting members 12 voting members

31. Responsibilities of the Fed  State Member banks Monitor reserves Monitor reserves  Bank Holding Companies  International Operations Foreign banks own about 20% of US banking assets Foreign banks own about 20% of US banking assets Approx. 800 branches of US banks abroad Approx. 800 branches of US banks abroad  Member bank mergers

32. b. Define monetary policy.  Actions by the Federal Reserve System to expand or contract the money supply in order to affect the cost and availability of goods

33. c. Describe how the Federal Reserve uses the tools of monetary policy to promote price stability, full employment, and economic growth.

34. The Fed’s 3 Tools of Monetary Control 1. Open-Market Operations (OMOs): the purchase and sale of U.S. government bonds by the Fed.  To increase money supply, (recession) Fed buys govt bonds, paying with new dollars. …which are deposited in banks, increasing reserves …which banks use to make loans, causing the money supply to expand.  To reduce money supply, (inflationary period) Fed sells govt bonds, taking dollars out of circulation, and the process works in reverse.

35. The Fed’s 3 Tools of Monetary Control 1. Open-Market Operations (OMOs): the purchase and sale of U.S. government bonds by the Fed.  OMOs are easy to conduct, and are the Fed’s monetary policy tool of choice.

36. The Fed’s 3 Tools of Monetary Control 2. Reserve Requirements (RR): affect how much money banks can create by making loans.  To increase money supply, (recession) Fed reduces RR. Banks make more loans from each dollar of reserves, which increases money multiplier and money supply.  To reduce money supply, (inflationary period) Fed raises RR, and the process works in reverse.  Fed rarely uses reserve requirements to control money supply: Frequent changes would disrupt banking.

37. The Fed’s 3 Tools of Monetary Control 3.The Discount Rate: the interest rate on loans the Fed makes to banks  When banks are running low on reserves, they may borrow reserves from the Fed.  To increase money supply, (recession) Fed can lower discount rate, which encourages banks to borrow more reserves from Fed.  Banks can then make more loans, which increases the money supply.  To reduce money supply, (inflationary period) Fed can raise discount rate.

38. The Fed’s 3 Tools of Monetary Control 3. The Discount Rate: the interest rate on loans the Fed makes to banks  The Fed uses discount lending to provide extra liquidity when financial institutions are in trouble, e.g. after the Oct. 1987 stock market crash.  If no crisis, Fed rarely uses discount lending – Fed is a “lender of last resort.”

39. Here is what a question for this standard might look like: The Federal Reserve wants to reduce the nation’s money supply. This could be accomplished by doing all of the following EXCEPT A decreasing the discount rate B increasing the reserve requirement C selling securities on the open market D making banks hold a reserve for all types of deposits

40. Answer to sample question Decreasing the discount rate will encourage banks to borrow money from the Federal Reserve and make loans. This will increase the money supply, so choice A is the correct answer. All other choices reduce the nation’s money supply.