1. Warm-up: Who is helped and who is hurt by inflation?
Mr. B pays his mom the $1,000 he borrowed 10 years ago.
A lottery winner receiving an annual payment.
A widow living on a fixed income.
Warm-up: Who is helped and who is hurt by inflation?

2. Unit 4 Macroeconomics SSEMA2
The student will explain the role and functions of the Federal Reserve System
SSEMA2.a
Describe the organization of the Federal Reserve System.
SSEMA2.b
Define Monetary policy.
SSEMA2.c
Describe how the Federal Reserve uses the tools of monetary policy to promote price stability, full employment and economic growth.
Unit 4 Macroeconomics

3. Control of the money supply through government policies
Fiscal Policy
Control of the money supply through government policies
Contractionary Fiscal Policy (Tight Money)
Increase Taxes
Decrease Spending
Expansionary Fiscal Policy (Easy Money)
Decrease Taxes
Increases Spending

4. What is the second tool we can use to influence the economy?
2. Monetary Policy

5. Attempts to influence the economy by changing the supply of money in the economy.
Monetary Policy

6. Why does the amount of money matter?
By controlling the money supply, the Fed can influence…
Unemployment and
Inflation

7. Why does the amount of money matter?
The money supply can also influence inflation and interest rates
more money = lower interest rates
less money = higher interest rates
Why does the amount of money matter?

8. How does the money supply influence interest rates?

9. The Federal Reserve System (The Fed)
central banking system created by Congress in 1913

10. The Federal Reserve System (The Fed)
Roles
Controls monetary policy (money supply)
Helps control inflation and interest rates

11. Monetary Policy Take money out of the economy
Expansionary or easy money policy
Put more money into the economy
Contractionary or tight money policy
Take money out of the economy

12. The Fed’s 3 Tools of Monetary Policy
Reserve Requirements
Discount Rate
Open Market Operations
The Fed’s 3 Tools of Monetary Policy

13. The Fed’s Tools of Monetary Policy
1. Reserve Requirements
Mandatory percentage of deposits that banks must hold on to and cannot lend
Increasing the reserve requirement (lowers money supply)
Decreasing the reserve requirement (increases money supply)
The Fed’s Tools of Monetary Policy

14. The Fed’s Tools of Monetary Policy
2. Discount Rate
The rate the Fed charges other banks to borrow money
The higher the discount rate, the less banks will wish to borrow and this will contract (decrease) the money supply
A lower discount rate will increase the money supply as banks borrow more
The Fed’s Tools of Monetary Policy

15. The Fed’s Tools of Monetary Policy
3. Open Market Operations
The Fed buys and sells Treasury Bonds
When the Fed buys bonds, it increases the money supply
When it sells bonds, it contracts the money supply

16. What is the Fed?
What roles does the Fed play in the economy?
What type of policy would you recommend for the Fed right now?
Review

17. Answer review questions on pp. 82-83 of the EOCT text
Choose one…
Write a summary of how the Fed uses monetary policy to influence the money supply and interest rates.
Or draw a picture to do the same.
Answer review questions on pp of the EOCT text
Homework

18. What is fiscal policy and what is it used for?
What is fiscal policy and what is it used for?
Explain the two tools (expansionary/contractiona ry)?
A look ahead…
What is the difference between a deficit and the national debt?
Learnings