Functions of the Federal Reserve Unit 16.2

Serving the Banking System Check Clearing Lending Money Regulating and Supervising Banks Bank Holding Company Controls more than one bank Bank Exams Audits of Financial Practices

Serving the Federal Government Paying the Government Bills Selling Government Securities Distributing Currency

Creating Money Money Creation Required Reserve Ratio (RRR) Deposit Multiplier Formula Where 10% is kept and 90% become the basis for new loans (RRR=10%) (1/RRR)=Deposit expansion multiplier

Factors Affecting Demand for Money Cash on Hand Interest Rates Cost of Consumer Goods and Services Level of Income