1. The Fed and Monetary Policy

2. The Federal Reserve System
The Federal Reserve System is more commonly known as “The Fed.” Note the difference, not “the Feds”
The purpose of the FED is “To Furnish a elastic currency and a more effective supervision of banking in the United states

3. How Does it achieve this purpose?
Supervise member banks, holds cash reserves for banks or the government, moves money into and out of circulation.
It does this in order to try and stabilize the money supply and banking system

4. What are the characteristics of the FED?
Lack of a single central bank
Ownership and control by member banks
Optional Membership in the FED for some banks

5. So why were there rules to the levels of the pyramid?
There are 3 levels of the Federal reserve. The top level is known as “The National Level”
It has the Board of governors which is 7 people appointed by the president
Also has the Federal Open Market Committee which contains the 7 members of the board plus the president of the federal reserve bank of New York and presidents 4 other district banks

7. The District Level Consists of 12 Federal reserve district banks
They represent the 12 geographical districts
What district are we? Where is the bank located?

9. Local level These are the member banks
You and I bank with these banks, have checking accounts and Savings accounts

10. What does the Fed do? Provides SERVICES TO BANKS Clears checks
Provides loans to banks
Seasonal disasters, financial emergency
Guard the reserve $

11. How it works…. You write a check to pay for your purchase at Publix
Publix send the check to their bank (Suntrust)
Suntrust send the information from your check to the Fed to make sure it isn’t fake
Then the Federal Reserve sends the check to your bank and your bank takes the money out of your account

12. What else does the FED do?
PROVIDES SERVICES TO THE GOVERNMENT
Serves as the government's bank
Supervises the FEDS member banks
Regulates the money supply
Money supply-amount of money circulating in the economy
The fed enters money into the economy for two reasons, to replace old notes and to increase amount of money in the money supply

13. MONETARY POLICY
The plan to expand or contract the money supply to influence the cost and availability of credit
Basically, to increase or decrease aggregate demand
Increasing money supply increases aggregate demand and decreasing money supply decreases aggregate demand

14. HOW CAN THE FED AFFECT THE ECONOMY
The FED uses Monetary policy- increasing and decreasing the money supply to regulate spending
The Fed has four “tools” they use in doing this.

15. THE FOUR TOOLS OF MONETARY POLICY
FOMC- SELLING AND BUYING BONDS AND SECURITIES
SELLING BONDS DECREASES THE MONEY SUPPLY
BUYING BONDS INCREASES THE MONEY SUPPLY
WHAT EFFECT DOES THE MONEY SUPPLY HAVE ON AGGREGATE DEMAND AND GDP?
Sell in expansion, buy in recession

16. The four tools
The reserve requirement- The total percentage of deposits a bank must keep inside it’s walls
High reserve requirements lower the money supply’
Low reserve requirements increase the money supply
How does this affect Aggregate demand and GDP?
High in expansion, low in recession

17. FOUR TOOLS
DISCOUNT RATE- THE INTEREST RATE (FEE) A MEMBER(LOCAL) BANK MUST PAY TO A DISTRICT BANK FOR A LOAN
HIGH DISCOUNT RATES ENCOURAGE BANKS TO HOLD MORE MONEY IN RESERVES
LOW DISCOUNT RATES ENCOURAGE BANKS TO LOAN OUT MORE MONEY
Low discount rate in recession, high in expansion

18. FOUR TOOLS OF MONETARY POLICY
INTEREST RATE OR PRIME RATE- The interest rate or fee that a member (local) bank customer must pay to receive a loan
High interest rates discourage customers from applying for loans
Low interest rates encourage customers to apply for loans
Low in recession, high in expansion

19. Types of Monetary Policy
Easy Monetary Policy- Increasing the money supply to increase aggregate demand and GDP. This is used to help fight unemployment.

20. Types of Monetary Policy
Tight Monetary policy- Decreasing the money supply to slow GDP growth and Fight Inflation.