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The Federal Reserve: Functions and Monetary Policy

Learn about the Federal Reserve and its functions, including regulating financial institutions, managing the money supply, and providing banking services to the government and banks. Understand how the Fed controls the money supply through tools like the discount rate, reserve requirement, and open market operations.

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The Federal Reserve: Functions and Monetary Policy

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  1. http://www.kc.frb.org/fed101/indexflash.cfm

  2. The Federal Reserve

  3. 12 FOMC 7- appt 14 yrs Boardof Governors 12 Bankers Federal Advisory Council Chairman Ben Bernanke 12 Federal Reserve Banks 1913 25 Branches 3000 Member Banks

  4. The Anatomy of a Dollar Bill

  5. Dollar Bill Facts • US currency bills are 2.61 inches wide and 6.14 inches long; they are .0043 inches thick and weigh 1 gram. (All US currency was made smaller in 1928) • All US Bills are cloth, not paper – 25% Cotton, 75% Linen with red and blue synthetic fibers distributed throughout. • Currency is printed by the Bureau of Engraving and printing. Each bill, regardless of denomination costs 4.2 cents to make. The BEP prints 16,650,000 $1 bills each day. • The $1 bill has an average lifetime of 18-22 months. Damaged bills are returned to the Fed and shredded. Last year, the Fed destroyed around $7.5B worth of currency

  6. Seal of Issuing Federal Reserve District B = New York City Issuing Federal Reserve District 2 = New York City Serial Number Engraving Plate Serial Number Design Date Seal of US Treasury Engraving Plate Identifier and Bill Location Identifier Signatures of Treasurer and Treasury Secretary

  7. Great Seal of the US “In God We Trust” added by Eisenhower in 1957

  8. The Great Seal (Front) • 13 leaves in the Olive Branch (Right Talon) • 13 arrows in left talon • 13 stars overhead • 13 Stripes on Shield (Blue Bar represents congress) • E Pluribus Unum: “From Many Comes One”

  9. The Great Seal (Back) • The Pyramid had 13 steps • MDCCLXXV1 = 1776 • The Pyramid is unfinished (the US is an ongoing project) • The western face is dark (the western US had yet to be explored • The deity watches over us • Annuit Coeptus = “God Has Favored our Undertakings” • Novus Ordo Seclorum = “A New Order Has Begun”

  10. Functions of the Fed: • Regulates financial institutions • Issues coin and currency • Manages money supply • Makes short term loans to banks • Provides banking services to Gov’t • Provides financial services to banks

  11. Keeping a sound money system: • Destroys unfit money • Detects counterfeit money • Removes obsolete bills

  12. Services to Government: • Accepts deposits • Issues checks • Redeems bonds and gov’t securities

  13. Services to Banks: • Distributes currency • Clears checks (Clearing House) • Transfers money • Makes loans to banks • Supervises banks

  14. Federal Reserve Philadelphia Federal Reserve San Francisco Check Clearing Your Bank Friend’s Bank Your Friend You

  15. Sources of Income • Interest on Government Securities • Interest on short term loans • Fees for services i.e.. Check clearing

  16. The Fed’s main function is: Monetary Policy- controlling the money supply.

  17. Three tools the Fed uses to control the money supply: • Discount Rate • Reserve Requirement • Open Market Operations

  18. Discount Rate: The interest rate that the Fed charges member banks for short term loans.

  19. Reserve Requirement: The percentage of a banks deposits that must be set aside and not loaned.

  20. Open Market Operations: The buying and selling of Government Securities (Bonds).

  21. The Fed 13 Fill-In (word bank) 12 True, False 9 Multiple Choice 3 Lists (of 3) 1 Chart

  22. In Your Journal • Paragraph form • What happens if there is too much or too little money in the economy? (What conditions occur? Use the words recession and inflation) • What could the Fed do to fix these issues? • Reserve Requirement • Discount Rate • Open Market Operations

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