1. Fig. 1 The Geography of the Federal Reserve System
District boundaries
State boundaries
Reserve Bank cities
Board of Governors of the Federal Reserve System
Dallas
Boston
New York
Washington
San Francisco
Kansas City
Atlanta 12 9 10 11 8 6 5 7 4 3 2 1
St. Louis
Chicago
Richmond
Cleveland
Minneapolis
Philadelphia
Note: Both Alaska and Hawaii are in the Twelfth District

2. Fig. 2 The Structure of the Federal Reserve System
Senate confirms
Chair of Board of Governors
12 Federal Reserve
District Banks
Lend reserves
Clear checks
Provide currency
3,500 Member Banks
Elect 6 directors
of each
Federal Reserve
Bank
Appoints 3 directors of each Federal Reserve Bank
President appoints
Federal Open Market
Committee
(7 Governors + 5 Reserve
Bank Presidents)
Conducts open market operations to control the money supply
Board of Governors
(7 members, including chair)
Supervises and regulates member banks
Supervises 12 Federal Reserve District Banks
Sets reserve requirements and approves discount rate

3. Fig.3 The Money Demand Curve
The money demand curve is drawn for a given real GDP and a given price level.
Money ($ Billions)
Interest Rate
At an interest rate of 6 percent, $500 billion of money is demanded. E 6%
If the interest rate drops to
3 percent, the quantity of money demanded increases to $800 billion. F 3% Md
500
800

4. Fig. 4 The Supply of Money Money ($ Billions) Interest Rate E 6% J 3%
500
700

5. Fig. 5 Money Market Equilibrium
Money ($ Billions)
Interest Rate 6% 9% 3% Ms
At a higher interest rate, an excess supply of money causes the interest rate to fall.
At the equilibrium interest rate of 6%, the public is content to hold the quantity
of money it is actually holding.
At a lower interest rate, an excess demand for money causes the interest rate to rise. E Md
300
500
800

6. Fig. 6 An Increase in the Money Supply
At point E, the money market is in equilibrium at an interest rate of 6 percent.
To lower the interest rate, the Fed could increase the money supply to $800 billion.
Money ($ Billions)
Interest Rate 6% 3%
The excess supply of money (and excess demand for bonds) would cause bond prices to rise, and the interest rate to fall until a new equilibrium is established at point F with an interest rate of 3 percent. E F Md
500
800

7. Fig. 7 Monetary Policy and the Economy
Interest Rate E 6% F 3%
500
800
Money ($ Billions)
Spending on plant and equipment, housing, and durables ↑ r ↓
Total Spending ↑
GDP ↑

8. Fig. 8 Interest Rate Expectations
Money ($ Billions)
Interest Rate 5%
10% Ms E
500

9. Fig. 9 The Fed's Response to Changes in Money Demand
Interest Rate
10% E E' 5%
Money ($ Billions)
500
1,000

10. Fig. 10 The Fed's Response to Spending Shocks
Interest Rate
7.5% H E 5% Md
Money ($ Billions)
300
500

11. Fig. 10a The Fed in Action: 2001 (a) Money ($ Billions) Interest Rate
6.4%
During 2001, the Fed repeatedly increased the money supply . . .
3.1% C
$1,093
1,170

12. Fig. 10b The Fed in Action: 2001 (c) Money (M1) ($ Billions) 1,000
1,050
1,100
1,150
1,200
Aug.
2000
Dec.
Apr.
2001
During 2001, the Fed repeatedly increased the money supply . . .

13. Fig. 10c The Fed in Action: 2001 (d) 5.0 4.0 6.0
Federal Funds Rate Percent
2.0
3.0
Aug.
2000
Dec.
Apr.
2001
which caused the interest rate to drop.