Download Chapter 16: The Federal Reserve and Monetary Policy

COURSE OUTLINE
Unit 1: Fundamentals of Economics
Economics and Choice
 Chapter 1:The Economic Way of
Thinking
 Chapter 2: Economic Systems
 Chapter 3: The American Free
Enterprise
Unit 2: Microeconomics
Market Economies at Work
 Chapter 4: Demand
 Chapter 5: Supply
 Chapter 6: Demand, Supply, and
Prices
 Chapter 7: Market Structures
Unit 3:
Types of Business Organizations
 Chapter 8: Types of Business
Organizations
Unit 4: Macroeconomics
Money and Banking
 Chapter 10: Money
Unit 5:
Measuring and Monitoring Economic
Performance
 Chapter 12: Economic Indicators
and Measurements
 Chapter 13: Facing Economic
Challenges
Unit 6:
The Role of Government in the
Economy
 Chapter 14: Government, State,
Local Revenue and Spending
 Chapter 15: Using Fiscal Policy
Unit 7:
The Global Economy
 Chapter 16: The Federal Reserve
and Monetary Policy
 Chapter 17: International Trade
Unit 8:
Personal Finance
 Chapter 11: Personal Finance &
Financial Markets
CP Economics Organizer
Chapter 16: The Federal Reserve and Monetary Policy
The Big Picture:
Monetary Policy and Interest Rates Monetary policy involves the Federal Reserve’s actions that change the money supply in order to stabilize
the economy. The most important monetary policy tool is open market operations through which the Fed buys or sells Treasury bonds. When
the Fed buys bonds, the money supply increases. When the Fed sells bonds, the money supply decreases. The Federal Open Market Committee
communicates its intention to buy or sell bonds by setting a target for the federal funds rate (FFR), the rate that banks charge one another to
borrow from their balances at the Fed overnight. When the Fed lowers the FFR target, it buys bonds; when it raises the target, it sells bonds.
The Fed may also adjust the required reserve ratio (RRR), the fraction of their deposits that banks must hold in reserve, or the discount rate, the
interest rate that the Fed charges other banks when it lends them money. The RRR rarely changes because doing so disrupts banks’ planning.
Expansionary monetary policy is used when the economy is weak. By buying bonds, decreasing the discount rate, or lowering the RRR, the
government seeks to lower interest rates and make it easier for people to borrow. More lending increases consumer spending and business
investment. Contractionary monetary policy is used to fight inflation. By selling bonds, increasing the discount rate, or raising the RRR, the
government seeks to raise interest rates and make it harder for people to borrow, thus cooling off inflation. Applying Monetary and Fiscal
Policy Monetary and fiscal policy work best when they are coordinated to achieve the same goal of stimulating a weak economy or fighting
inflation. With expansionary policy, the government increases spending or lowers taxes (fiscal) and the Fed buys bonds (monetary). These
policies increase demand and real GDP and lower unemployment. With contractionary policy, the government decreases spending or raises
taxes (fiscal) and the Fed sells bonds (monetary). These policies decrease demand and real GDP and increase unemployment. Conflicting
monetary and fiscal policies can counteract one another and lead to economic instability
Unit Pacing:
Homework
_____– The Federal Reserve and
Monetary Policy
____– Read p. 474-478
_____ – Monetary Policy &
____—Read p. 490-496
RETEACHING ACTIVITIES
Section 1-3
_____— Chapter 16 Definitions Test
& TEST
Key Terms and Phrases:
(Reading Assignments)
____—Read p. 484
1.
2.
3.
4.
5.
6.
7.
The Federal Reserve System
Monetary Policy
Inflation
Recession
Stagnation
Federal Reserve Banks
Federal Open Market
Committee (FOMC)
8. Board of Governors
9. Ben Bernanke
10. Prime Rate
11. Expansionary Monetary Policy
12. Currency
13. Contractionary Monetary
Policy
14. Securities
15. Open Market Operations
16. Reserve Requirement
17. Discount Rate
18. Easy-money policy
19. Money Supply
20. Reserve Requirements
21. Circulation
22. Loose Money Policy
23. Tight Money Policy
Essentials Question:
GPS
1. Explain the structure of the Fed.
2. Describe the role of the Federal Reserve in stabilizing the economy.
1. SSEMA2
Course Website: http://www.gocats.org