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GRADE 8 UNIT 2 THE FED Chapter 15. Warm-up 10/26 If the interest rate is low will people be likely to borrow more or less money from the bank?

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Presentation on theme: "GRADE 8 UNIT 2 THE FED Chapter 15. Warm-up 10/26 If the interest rate is low will people be likely to borrow more or less money from the bank?"— Presentation transcript:

1 GRADE 8 UNIT 2 THE FED Chapter 15

2 Warm-up 10/26 If the interest rate is low will people be likely to borrow more or less money from the bank?

3 Warm-up 10/26 If the interest rate is low will people be likely to borrow more or less money from the bank? Low Interest rates cause people to borrow more, the interest rate is what they pay the bank to borrow money. High Interest rates discourage borrowing.

4 LEQ How does the Federal Reserve interact with the banks to stimulate the market economy?

5 Homework Start studying your banking terms – vocabulary quiz on Friday.

6 Page 405 Question 1: Terms to Know The Federal Reserve System created by Congress in 1913 as the nations central banking system Policy that involves changing the rate of growth of the supply of money in circulation in order to affect the cost and availability of credit FEDMonetary Policy

7 Page 405 Question 1: Terms to Know 12- member committee in the Federal Reserve that meets 8 times a year to decide the course of action that the Fed should take to control the money supply Method by which a check that has been deposited in one institution is transferred to the issuers depository institution. Federal Open Market OperationsCheck Clearing

8 Page 405 Questions #2: The Federal Reserve System is made up of a Board of Governors assisted by the Federal advisory Council, the Federal Open market Committee, 12 Federal Reserve district banks, 25 branch banks and about 4,000 member banks. It is a network of banks, with power not concentrated but shared. Organization of the Federal Reserve System FEDERAL OPEN MARKET Committee Board of Governors – 7 members Federal Reserve Banks 12 Banks 25 Branches Member Banks Federal Advisory Council 12 members

9 Page 405 Question #3 Functions of the FED Clearing checks Acting as the federal governments fiscal agent Supervising member banks Holding reserves and setting reserve requirements Regulating the money supply Supplying paper currency

10 Page 410 Question 1: Monetary policy that makes credit inexpensive and abundant, possibly leading to inflation Monetary policy that makes credit expensive and in short supply in an effort to slow the economy Loose money policyTight money policy

11 Page 410 Question 1: System in which only a fraction of the deposits in a bank is kept on hand or in reserve; the remainder is available to lend Regulation set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district banks. Fractional Reserve BankingReserve Requirement

12 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy Borrowing Consumer buying Businesses Employment Production

13 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easy Consumer buying Businesses Employment Production

14 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buying Businesses Employment Production

15 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy more Businesses Employment Production

16 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy moreConsumers buy less Businesses Employment Production

17 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy moreConsumers buy less BusinessesCan expand because they can afford to borrow Employment Production

18 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy moreConsumers buy less BusinessesCan expand because they can afford to borrow Business postpone expansion – borrowing is expensive Employment Production

19 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy moreConsumers buy less BusinessesCan expand because they can afford to borrow Business postpone expansion – borrowing is expensive EmploymentMore people are employed because businesses are growing … Production

20 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy moreConsumers buy less BusinessesCan expand because they can afford to borrow Business postpone expansion – borrowing is expensive EmploymentMore people are employed because businesses are growing … Unemployment starts to increase – people buying less, companies laying people off… Production

21 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy moreConsumers buy less BusinessesCan expand because they can afford to borrow Business postpone expansion – borrowing is expensive EmploymentMore people are employed because businesses are growing … Unemployment starts to increase – people buying less, companies laying people off… ProductionProduction is up – people spend more, companies make more

22 Page 410: Question 2 Effect on…Loose Money PolicyTight Money Policy BorrowingIs easyIs difficult Consumer buyingConsumers buy moreConsumers buy less BusinessesCan expand because they can afford to borrow Business postpone expansion – borrowing is expensive EmploymentMore people are employed because businesses are growing … Unemployment starts to increase – people buying less, companies laying people off… ProductionProduction is up – people spend more, companies make more Production is reduced, people are not buying…

23 Page #3 What is the purpose of the fractional reserve system? Banks are required to keep a fraction (currently 10%) of each persons deposits on reserve in their vault or an account at the Fed in case one or more banking customers decides to withdraw large amounts of cash at one time.

24 Page #4. How does the money supply expand? Banks use their excess reserves to make loans to businesses and people which creates in effect new money. Once the money is paid back to the bank it is essentially destroyed or disappears from the money supply. The more people borrow – the more money created- the less they borrow – the less available.

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26 SHARE IT Switch papers with someone – read their explanation and give them a grade – 1 – Tried but does not answer the question 2 – Answered one part of the question, but did not explain 3 - Answered both parts of the question but missing explanation 4 – Answered both parts of the question and provided one explanation 5 – Answered both parts and gave two complete explanations


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