1. The Federal Reserve System
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2. Brain Teaser
Why do you think it crucial to have one central bank in the United States?
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3. The Federal Reserve System (Fed) is the central bank of the United States
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4. The Federal Reserve is known as a banker’s bank
When people or corporations need money they borrow from a bank
When banks need money they borrow from the (Fed) Federal Reserve
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5. Structure and Organization of the Federal Reserve
The US is divided into 12 Federal Reserve Districts
Each district has 1 Federal Reserve Bank
Most Federal Reserve Banks have smaller branch banks in their districts
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6. The Board of Governors
There are 7 members on the Federal Reserve Board of Governors
They are appointed by the President and confirmed by the Senate
The members are independent from Congress, because they do not depend on them for funds
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7. Federal Reserve banks act as a banker’s bank by issuing currency and regulating the amount of money in circulation.
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8. The 2 ways the Federal Reserve acts as the Government’s Bank
Issuing Currency
Regulating the amount of money in circulation
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9. 1. Issuing Currency Currency includes paper money and coins
Money is produced by the Federal Government but controlled by the Federal Reserve
The Federal Reserve deals with damaged currency as well
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10. 2. Regulating Currency
Federal Reserve conducts the nation’s monetary policy
The Federal Reserve can change the supply of money in the US economy
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11. Ways the Federal Reserve Bank Slows the Economy
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12. To slow the economy, the Federal Reserve Bank restricts the money supply, causing interest rates to rise.
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13. The 3 ways the Federal Reserve Bank slows the economy
Increases the reserve requirement
Raises the discount rate
Sells government securities (bonds)
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14. Increases the reserve requirement
When the Fed does this, banks must leave more money with the Fed
If more money is left with the Fed, then there is less money to loan people
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15. Raises the discount rate
The discount rate is the rate the Fed charges smaller banks for loans
If the rate is raised, banks will be less likely to borrow money from the Federal Reserve Bank
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16. Sells government securities
The Fed can sell government bonds to increase interest rates
Increased interest rates means less spending in the economy
Less spending means the economy slows down
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17. Ways the Federal Reserve Bank Stimulates the Economy
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18. To stimulate the economy the Fed increases the money supply, causing interest rates to decline.
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19. The 3 ways the Federal Reserve stimulates the economy
Lowers the reserve requirement
Lowers the discount rate
Purchases government securities (bonds)
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20. Lowers the reserve requirement
The opposite of raising it results in banks having more money to loan people
More loaned money = people spending money in the economy
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21. Lowers the discount rate
Low discount rates encourages banks to borrow more money from the Federal Reserve
More money borrowed=more money to loan to consumers in the economy
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22. Purchases government securities
Buying bonds from investors puts more money in investor’s hands
This increases the money supply
Consumers and businesses then borrow more money, which stimulates economic growth
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23. Scenario 1 What would you recommend in the following situation:
The nation is coming off years of strong economic growth and there are fears of high inflation. Banks are making loans very freely at very low interest rates.
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24. Scenario 2 What would you recommend in the following situation:
Economic activity is beginning to slow down as credit (loans) is less available. Demand for goods is falling and few people have extra money to spend to stimulate production. High interest rates are making it more expensive to borrow money.
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25. SO WHAT??? What is important to understand about this?
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26. The Federal Reserve System, acting as the central bank, regulates the money supply.
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27. How much do you remember?
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28. Which of these is NOT a way the Federal Reserve influences banking?
It controls the amount of money in circulation.
It regulates how much money banks must keep on hand.
It controls the interest rates that banks borrow money at.
It regulates the interest rate for home mortgages. d
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29. Which of these will the Federal Reserve NOT do when it wants to stimulate the economy?
buy back government bonds
lower the rate banks borrow money at
sell government bonds
lower the amount of money that banks must keep on hand c
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