4/19/16 AIM: How does the federal government protect national economic interests? Do-Now: What type of economic system does the United States have?

Types of Economic Systems Market: Prices are determined by the market (supply and demand). Command: Prices are determined by the government and what goods should be produced. Mixed: All modern economies are mixed. Government prevents monopolies but prices mainly by supply and demand.

FDIC and Banking The Federal Deposit Insurance Corporation (FDIC) was created by the Glass-Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank.

What is the Federal Reserve System? The Federal Reserve is the central bank of the United States. A central bank is the government agency that oversees the banking system and is responsible for the amount of money and credit in the economy.

What are the Federal Reserve’s responsibilities? 1. To regulate bank holding companies and state chartered banks. 2. To supply money and credit to the economy to maintain stable prices and full employment. 3. To ensure the smooth functioning of the payments system. 4. To act as the government’s bank. Fed (a CB) created to ensure the safety of the banking system through regulation. National banks required to join the Fed system. Enormous bank failures led to the creation of the FDIC in 1933. Glass-Steagall prevents banks from underwriting or dealing in corporate securities. G-S prohibited investment banks from engaging in commercial banking. Banks had to sell off their investment banking divisions. What is the relationship between the Fed, the Treasury, the FDIC, etc.? Regulatory agencies are a crazy quilt of overlapping jurisdictions. OCC does national, Fed does state chartered and holding companies, FDIC, state regulators have sole authority over state banks with no FDIC insurance.

The Fed’s Objectives “Stable prices” “Maximum employment” Moderate long-term interest rates 1. What's the number one monetary policy of the FED? And how does the FED meet it? Generally, fostering an atmosphere of price stability is the best way to meet all our goals. How did the FED keep balance between monetary and fiscal policies within past years? There is no such thing as fiscal policy, per se. U.S. tax and spending policies don’t change (exogenously) very often. Mostly, the US deficit reacts to economic conditions, not the other way round. 2. How can we reach the goal of both stable price and full employment? In reality, government can reach one of them at the sacrifice of another one, is it true? In the short run, there may be a tradeoff between inflation and full employment. There is no such tradeoff in the long run. 3. What are the current issues for Federal Reserve Bank? What do you think about the economic condition in U.S.? Is it substantial or bubble? Is productivity growth permanently higher and by how much? Should the Fed be concerned with asset prices? If so, what, if anything should we do about them? How do they figure into our reaction function? What is happening to velocity?