1 / 11

CHAPTER 4

CHAPTER 4. Functions of the Fed. CHAPTER 4 OVERVIEW. This chapter will: A. Identify the key components of the Fed B. Describe how the Fed influences monetary policy. A. Organization of the Fed. 1. Federal Reserve District Banks a. 12 national districts

edolie
Download Presentation

CHAPTER 4

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 4 Functions of the Fed

  2. CHAPTER 4 OVERVIEW This chapter will: A. Identify the key components of the Fed B. Describe how the Fed influences monetary policy

  3. A. Organization of the Fed 1. Federal Reserve District Banks a. 12 national districts b. New York is considered most important c. Member banks (those commercial banks) must purchase stocks in their Federal Reserve district bank d. Each district has 9 directors e. District banks: 1.) clear checks 2.) replace old currency 3.) provide loans to member banks 4.) collect economic data and conduct research

  4. A. Organization of the Fed 2. Member Banks a. Required of all nationally chartered banks b. At present, about 35% of all banks are member banks c. Member banks hold about 70% of all bank deposits in the U.S. economyy

  5. A. Organization of the Fed 3. Board of Governors a. Composed of 7 members appointed by the President for a 14 year non-renewable term b. Chair selected by President to serve a renewable 4 year term Alan Greenspan (1987-2006); Ben Bernanke (2006- ) c. Roles of the Board: 1.) regulate commercial banks 2.) control monetary policy: revise reserve requirements on depository institutions; change interest rate; buying or selling bonds through Federal Open Market Committee.

  6. A. Organization of the Fed 4. Federal Open Market Committee (FOMC) a. Made up of 7 members from the Board of Governors plus the presidents of 5 district banks. Chair of FOMC is also the Chair of the Board of Governors. b. Main goals: 1.) achieve stable economic growth 2.) stabilize inflation

  7. B. Monetary Policy Tools 1. Open Market Operations a. FOMC Meets 8 times/year b. Communication to the Trading Desk c. Role of the Trading Desk d. Fed purchase of Securities: increase in money supply e. Fed sale of Securities: decrease in money supply Discussion: how open market operations affect all interest rates?

  8. B. Monetary Policy Tools 2. Adjusting the interest Rate lending to depository institutions to influences the market interest rates 3. Adjusting the Reserve Requirement Ratio Reserve Requirement Adjustments affect Money Growth because higher reserves lead to less borrowing and lower reserves lead to more borrowing

  9. Exhibit 4.3 Illustration of Multiplier Effect

  10. C.Global Monetary Policy Each country has its own central bank that controls the money supply and monetary policy 1. A Single Eurozone Monetary Policy a. Impact of the Euro on Monetary Policy 1.) 12 European countries made their currency the euro 2.) European Central Bank based in Frankfurt 3.) Monetary policy set for the 12 members b. Variations in the Value of the Euro fluctuated widely since introduced in1999

  11. Summary • 1. The structure of Fed • 2. The goal of Federal Open Market Committee • 3. How does Fed affect money supply • 4. Homework Assignment 3: Questions and Applications 2, 3, 9. more assignment 3 in Chapter 5.

More Related