Download Federal Reserve System`s

1.
2.
Review Money Market and Loanable Funds
Market HW and Practice FRQ
Notes: The Federal Reserve System
Unit 3 Exam is postponed until Monday/Tuesday of
next week (March 31 & April 1)
The Federal Reserve System
◦ The Federal Reserve System’s main tasks are to
promote the goals of maximum employment, stabilize
prices, regulate the interest rate and quantity of
money to achieve low and predictable inflation
and sustained economic growth.
◦ Oversees the banking system and controls the
money supply.
Here is how it works:
-Board of Governors
-These 7 serve as the big bosses of the Federal
Reserve system.
-They are appointed by the President, approved by
Senate (14 year terms)
The Board of Governors is led by its Chair
-The chair, chosen by the President from the
7 members, serves as chair for 4 years.
-Current Chair: Janet Yellen - Just appointed
2/1/2014 by Obama
12 District Federal Reserve Banks: Each has its own district and monitors
the banking and economic conditions in its area.
Federal Open Market Committee (FOMC)
-Fed’s main policy-making committee
-Consists of 12 members--the seven members of the Board of
Governors and five of the 12 Reserve Bank presidents (Always
NY)
-Sets the discount rate (rate which commercial banks must
pay to borrow from the FED) and decides whether to increase
or decrease the money supply, which the Fed does by buying
and selling government securities (bonds.)
The 4,000 member banks and
25,000 other depository
institutions (Savings Bank,
Credit Union, etc.)
The FOMC uses monetary policy to raise or lower interest rates
through the money market.
 Lower interest rates promote spending & investment, thus
increasing employment (Expansionary Monetary Policy)
 Higher interest rates prevent inflation and stabilize prices.
(Contractionary Monetary Policy)
 Monetary policy is transmitted through the economy through
changes in Aggregate Demand.
 The Fed has 3 main policy tools it can use to control
equilibrium interest rates in the money market:
1.
The Reserve Requirement
2.
The Discount Rate
3.
Open Market Operations (OMO’s)
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