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CE.11d The Federal Reserve System. CE.11d Brain Teaser Why do you think it crucial to have one central bank in the United States?

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Presentation on theme: "CE.11d The Federal Reserve System. CE.11d Brain Teaser Why do you think it crucial to have one central bank in the United States?"— Presentation transcript:

1 CE.11d The Federal Reserve System

2 CE.11d Brain Teaser Why do you think it crucial to have one central bank in the United States?

3 CE.11d The Federal Reserve System (Fed) is the central bank of the United States

4 CE.11d The Federal Reserve is known as a banker’s bank When people or corporations need money they borrow from a bank When banks need money they borrow from the (Fed) Federal Reserve

5 CE.11d Structure and Organization of the Federal Reserve The US is divided into 12 Federal Reserve Districts Each district has 1 Federal Reserve Bank Most Federal Reserve Banks have smaller branch banks in their districts

6 CE.11d The Board of Governors There are 7 members on the Federal Reserve Board of Governors They are appointed by the President and confirmed by the Senate The members are independent from Congress, because they do not depend on them for funds

7 CE.11d Federal Reserve banks act as a banker’s bank by issuing currency and regulating the amount of money in circulation.

8 CE.11d The 2 ways the Federal Reserve acts as the Government’s Bank 1.Issuing Currency 2.Regulating the amount of money in circulation

9 CE.11d 1. Issuing Currency Currency includes paper money and coins Money is produced by the Federal Government but controlled by the Federal Reserve The Federal Reserve deals with damaged currency as well

10 CE.11d 2. Regulating Currency Federal Reserve conducts the nation’s monetary policy The Federal Reserve can change the supply of money in the US economy

11 CE.11d Ways the Federal Reserve Bank Slows the Economy

12 CE.11d To slow the economy, the Federal Reserve Bank restricts the money supply, causing interest rates to rise.

13 CE.11d The 3 ways the Federal Reserve Bank slows the economy 1.Increases the reserve requirement 2.Raises the discount rate 3.Sells government securities (bonds)

14 CE.11d 1.Increases the reserve requirement When the Fed does this, banks must leave more money with the Fed If more money is left with the Fed, then there is less money to loan people

15 CE.11d 2.Raises the discount rate The discount rate is the rate the Fed charges smaller banks for loans If the rate is raised, banks will be less likely to borrow money from the Federal Reserve Bank

16 CE.11d 3.Sells government securities The Fed can sell government bonds to increase interest rates Increased interest rates means less spending in the economy Less spending means the economy slows down

17 CE.11d Ways the Federal Reserve Bank Stimulates the Economy

18 CE.11d To stimulate the economy the Fed increases the money supply, causing interest rates to decline.

19 CE.11d The 3 ways the Federal Reserve stimulates the economy 1.Lowers the reserve requirement 2.Lowers the discount rate 3.Purchases government securities (bonds)

20 CE.11d 1.Lowers the reserve requirement The opposite of raising it results in banks having more money to loan people More loaned money = people spending money in the economy

21 CE.11d 2.Lowers the discount rate Low discount rates encourages banks to borrow more money from the Federal Reserve More money borrowed=more money to loan to consumers in the economy

22 CE.11d 3.Purchases government securities Buying bonds from investors puts more money in investor’s hands This increases the money supply Consumers and businesses then borrow more money, which stimulates economic growth

23 CE.11d Scenario 1 What would you recommend in the following situation: –The nation is coming off years of strong economic growth and there are fears of high inflation. Banks are making loans very freely at very low interest rates.

24 CE.11d Scenario 2 What would you recommend in the following situation: –Economic activity is beginning to slow down as credit (loans) is less available. Demand for goods is falling and few people have extra money to spend to stimulate production. High interest rates are making it more expensive to borrow money.

25 CE.11d SO WHAT??? What is important to understand about this?

26 CE.11d The Federal Reserve System, acting as the central bank, regulates the money supply.

27 CE.11d How much do you remember?

28 CE.11d 1.Which of these is NOT a way the Federal Reserve influences banking? a.It controls the amount of money in circulation. b.It regulates how much money banks must keep on hand. c.It controls the interest rates that banks borrow money at. d.It regulates the interest rate for home mortgages.

29 CE.11d 2.Which of these will the Federal Reserve NOT do when it wants to stimulate the economy? a.buy back government bonds b.lower the rate banks borrow money at c.sell government bonds d.lower the amount of money that banks must keep on hand


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