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Federal Reserve and Macroeconomic Policy

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Presentation on theme: "Federal Reserve and Macroeconomic Policy"— Presentation transcript:

1 Federal Reserve and Macroeconomic Policy
Monetary Policy Federal Reserve and Macroeconomic Policy

2 History of the Fed Created by Congress in 1913 Nation’s Central Bank
Response to bank failures and panics Main Job: Conduct monetary policy Regulate amount of money in economy Promote economic growth  Full Employment Limit inflation Other jobs Make and enforce rules for banks Financial services (ex. Check clearing)

3 Structure of the Fed Board of Governors: Run the Fed System
7 Governors, 14 year terms Chairman selected from board (Ben Bernanke) Appointed by President, confirmed by Senate Federal Open Market Committee (FOMC) Federal Reserve Banks (12)

4 Monetary Policy Conducted by FOMC Open Market Operations
Affects Federal Funds Rate Buying and selling government securities (bonds) Buying securities Increases money supply banks have more money to lend lower interest rates consumers and businesses borrow and spend more fights unemployment and recessions Selling securities Decreased money supply fight inflation Current Fed Funds Rate = approximately 0 %

5 Other Monetary Policies
Discount Rate changes Interest rate Fed charges banks to borrow money from the Fed Current Discount Rate = .75% Reserve Requirement changes % of deposits banks must hold 3% for banks with $10-$55 million 10% for banks with over $55 million

6 “Easy Money” Monetary Policy
Fight Recessions, Unemployment Open Market Operations Buy government securities from banks Lower Fed Funds Rate Lower Discount Rate Lower Reserve Requirement

7 “Tight Money” Monetary Policy
Fight Inflation Open Market Operations Sell government securities to banks Raise Fed Funds Rate Raise Discount Rate Raise Reserve Requirement

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