Download Aim: How does the Federal Reserve regulate the money supply?

Aim: What are the functions of the
Federal Reserve?
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Do Now: What role of the Federal Reserve is shown
in this photo? What qualifications do you think this
employee needs to do her job?
Organization of the Federal
Reserve System
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Established in 1913
Is in charge of the nation’s monetary policy
Determines how much money is available, how
easily it can be borrowed, and how costly it will be
Monetary Policy
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Involves changing the rate of growth of the supply
of money in circulation in order to affect the cost
and availability of credit
Functions of the Federal Reserve
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Clearing Checks
Acting as the Federal Government’s fiscal agent
Supervising member banks
Holding reserves and settling reserve requirements
Supplying paper currency
Regulating the money supply
Consumer Protection – Truth in Lending (Chp 4)
Money Supply and the Economy
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Loose v Tight Money Policies
 Loose
Money Policy
 Tight Money Policy
Loose Money Policy
“Expansionary”
• Borrowing is Easy
• Consumers buy more
• Businesses expand
• More people are employed
• People spend more
• Inflation
Tight Money Policy
“Contractionary”
• Borrowing is difficult
• Consumers buy less
• Businesses postpone expansion
• Unemployment increases
• Production is reduced
• Recession
What will happen in this scenario?
Why?
Loose
Money
Policy
An
Increase
in:
Leads to…