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Introduction to Money Supply and the Federal Reserve System
- Review Proficiency Scale Money Supply:
how much money is available in an economy. Loose Money Policy:
monetary policy that makes credit inexpensive and abundant, possibly leading to inflation. Tight Money Policy:
monetary policy that makes credit expensive and in short supply in an effort to slow the economy -
What is the FED? Central bank of the US
When was it created? 1913 Who created it? U.S. Congress Purpose:
To strengthen the nation’s banking
activities by regulating the money supply. Main Goal:
To keep the economy growing stable and growing without inflation. -
- Board of Governors
- Federal Advisory Council
- Federal Open Market Committee
- 12 Federal Reserve banks
- 25 Branch Banks
- 4,000 member banks
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Analyze each of the 6 functions of the Federal Reserve System.
- Check clearing
- Acting as the federal government’s fiscal agent
- Supervising member state banks
- Holding reserves of money
- Supplying paper currency
- Regulate the money supply -
https://youtu.be/I2m3t2Yr8Vg Actively listen to the FED Documentary to relate the material learned about the structure and functions of the Federal Reserve System.
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Fractional Reserve Banking:
System in which only a fraction of the deposits in a bank is kept in reserve. Reserve Requirement:
Regulations set by the Fed requiring banks to keep a certain % of their deposits. Excess Reserves:
The initial amount deposited to a bank minus the % of reserve requirement. The remaining is available to lend. -
Reserve Requirement:
Regulations set by the Fed requiring banks to keep a certain % of deposits. Lower Reserve Requirement = Increases Money Supply Higher Reserve Requirement = Decreases Money Supply -
Discount Rate:
Interest rate the FED charges on loans to member banks. Federal Funds Rate:
Interest rate that banks charge each other on loans. -
The buying and selling of US securities by the Fed to affect the money supply.
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Changing Reserve Requirements
The FED could lower the reserve requirement.
The FED could increase the reserve requirement Discount Rates
High discount rates discourage borrowing and might keep down the growth of the money supply.
Lower discount rates, will attract banks to borrow money. Open-Market-Oprations
The buying of US securities increases the money supply and selling of securities decreases the the money supply. -
The federal government’s use of taxation and spending policies to affect overall business activity. Expansionary Policy
- Increase in government spending
- Decrease taxes Contractionary Policy
- Decrease government spending
- Increase taxes -
Monetary Policy:
Changes in the rate of growth to affect the money supply by the Federal Rerve System. Fiscal Policy
The federal government’s use of taxation and spending policies to affect overall business activity. -
Students will write a summary answering everything provided in the unit proficiency scale.
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Students will be assessed on the unit 3 material through an exam.
