1. and its Macroeconomics – Chapter 16, Sections 1 & 2

2. Since the 1930’s our Government has been required to carry out policies to [1] [2] [3]minimize ___________ maximize ___________ growth / GDP unemployment inflation

3. There are two primary ways to accomplish these goals: [1] [2] __________ Policy ________ Policy Fiscal Monetary Fiscal Policy is carried out by.... (1) __________ & (2) _________ The President Congress

4. Monetary Policy is carried out by our Central Bank – in the US called... [1] aide expansion of US businesses by supplying more cash, and The Fed was established in 1913 & restructured in 1935 to... The Fed = The Federal Reserve System [2] be a source of emergency cash in case of a panic 4 of 22

5. 12 District Reserve Banks 7-member Board of Governors (including Chair of Board) 4000 private bank members who benefit from membership Structure of the Federal Reserve System

6. The Federal Reserve System is comprised of 12 regional banks with 25 branches.

7. This man served as Chair of the Board for 18 years. This man was sworn in as our new Chair on Jan 31, 2006. _______________ Alan Greenspan _______________ Ben Bernanke

8. The Fed is constantly monitoring the health of the USA economy. B/c Fed officials aren’t elected, the Fed most often acts with the best interests of the country in mind, unlike politicians who have to worry about being __________. The Fed is owned by its 12-member banks, NOT the USA ____________  high degree of independence. government re-elected

9. Functions of the Fed: [1] [2] [3]to serve as a lender of last resort for member banks to regulate its member banks to serve as the bank of the US Gov’t 9 of 22

10. Functions of the Fed: [4]to issue new currency coins are minted at the US Mint part of the Dept of Treasury (gov’t) new paper currency is printed by the Fed and first issued by the Fed Reserve Banks

11. Functions of the Fed: [5]to clear checks

12. Functions of the Fed: [6] [7] to set a key interest rate – the discount rate – the rate at which the Fed loans money to banks to set the supply of money in the economy

13. Our new car loan rates range from 6.74% to 13.74% APR. To obtain the lowest annual percentage rate, you must have excellent credit history,.... (Dec. 2008) Annual Percentage Rates (APR) - As Low As.... New car 5.30% Used car (franchise dealer) 5.85% Used car (private party) 8.34% (Dec. 2008) Banks we use are private businesses... they set their own rates but... 13 of 22

14. but... the rate at which banks loan money to us is strongly impacted by the discount rate – the rate at which the Fed loans to private banks. Fed Reserve Bank of New York $ commercial paper – overnight loans between banks $ $ federal funds rate – the rate at which banks loan to each other over night discount rate – the rate at which the Fed loans to banks $ $ $ $

15. These decisions are made by the 14 members of the Federal Open Market Committee (FOMC). The FOMC meets 8 times per year at the Washington DC Fed.

16. The Fed has 2 tools to carry out Monetary Policy to help control the economy [1] [2] set the ________ rate – the interest rate at which they loan money to banks set the supply of _______ money discount 16 of 22

17. Let’s say we’re suffering from terrible inflation (a bad inflation rate is inflation ____%). The Fed will increase decrease money supply in order to drive prices down. The Fed uses it tool of setting money supply. >5

18. Let’s say we’re suffering from high unemployment (our natural rate of unemployment is __ - __%). The Fed will increase decrease the interest rate in order to get consumers & investors to spend more money The Fed uses it tool of setting the discount rate. 4 - 5 18 of 22

19. Let’s say we’re suffering from a recession (our average annual rate of GDP growth is ___%). The Fed will increase decrease the interest rate in order to get consumers & investors to spend more money The Fed uses it tool of setting the discount rate. 3

20. start Chapter 16, Section 1 & 2 notes Chapter 16, Sections 1 & 2 – The Fed & Monetary Policy ________(date)  The Fed – The Federal Reserve System – is the USA’s central bank  The Fed constantly monitors the economy & uses monetary policy to correct problems

21. continue Chapter 16, Section 1 & 2 notes  Functions of the Fed: [1] loan money to and regulate private banks [2] clear checks [3] print & issue new paper currency [4] set the money supply [5] set the discount rate – interest rate charged to private banks

22. continue Chapter 16, Section 1 & 2 notes  Monetary Policy [1] increase or decrease MS (money supply) MS   inflation  [2] increase or decrease i (interest rate) MS   inflation  i   borrowing   spending   growth   employment  i   borrowing   spending   growth   employment  22 of 22

23. Once the Fed designs its “Federal Reserve Note” it is signed by the Treasurer of the U.S. Anna Escobedo Cabral – 42 nd Treasurer of the USA Summer, 2007 Newly-designed “5” had not been released and she told us that it would be the color ________.