Chapter 16

1. Chapter 16 Monetary Policy and a Look at the Role of Labor

3. The Federal Reserve System • The central bank is a nation’s main monetary authority. Monetary means related to money. • The Federal Reserve System is the central bank of the U.S. • #1 The central bank holds reserves. These reserves influence the market and are used in an emergency. • #2 The central bank assure stability. It regulates and supervises all banking. • #3 The central bank lends money. It serves private banks and the government.

4. The Fed: U.S National Bank • The “Fed” or Federal Reserve became the first truly national and central bank of the U.S. in 1913. In essence it is the bank of the banks. • The Fed also distributes currency and regulates the supply of money.

5. Structure of the Fed • #1 The Board of Governors: Seven appointed members who serve no more than two years and performs operations and sets policy. • #2 Twelve District Banks: Regional branches of the Fed that focus on the policies and concerns of a particular region of the country. • #3 Member Banks: All nationally chartered banks • #4 Federal Open Market Committee (FOMC): Supervises sales and purchases of government. • #5 Advisory Councils: Committees that directly report to the board of governors.

8. Functions of the Federal Reserve

9. Serving the Banking System • #1: Check Clearing: The service where the Fed records the receipts and expenditures of bank clients. • #2 Lending Money: The Fed lends money out to private and local banks on a short term basis. • #3 Regulating and Supervising Banks: Enforces lending laws and ensures that banks are following the proper protocol

12. Serving the Government • #1 Paying Government Bills: The Fed acts as the money handler for taxes and is the one that makes the mandatory payments for the government. • #2 Selling Government Securities: Sells and manages bonds sold to other governments and private owners when the government wants to borrow money. • #3 Distributing Money: Issues the actual currency used in day to day business.

13. Creating Money • The Fed does not literally create money, that is the Mint. Instead it directs the way in which it is distributed: loans, directly, indirectly, etc. • To ensure banks don’t over loan, the fed has a Required reserve ratio (RRR) which is the fraction of a bank’s deposits that must be kept in reserve and on hand. • The deposit multiplier formula tells how much the money supply will increase after an initial cash deposit. • Pg. 484-85 for examples.

14. Demand for Money • The Fed has to pay attention to several factors of demand when determining how to set the supply of money. • #1 Cash on Hand: Certain times require people to have more physical cash on hand. • #2 Interest Rates: The higher the rates, the more likely people will save. • #3 Cost of Consumer Goods and Services • #4 Level of Income: The higher the income, them more people tend to hang onto in cash.

15. Monetary Policy

16. The Fed’s Tools • Monetary Policy are the actions taken by the Fed to change money supply and influence the economy. • Action #1: Open Market Operations: The sale or purchase of government securities. • Action #2: Adjusting the Reserve Requirement • Action #3: Adjusting the Discount Rate (The interest rate that the Fed charges when it lends money to other banks).

17. Types of Monetary Policy • #1 Expansionary: The plan involves increasing the money supply. This is a policy used to bring an economy out of a recession. Buys bonds and lowers the reserve requirement and discount rate. • #2 Contractionary: The plan involves reducing the money supply. Designed to reduce inflation and it make it easier for businesses to get loans. Sells bonds and increases the reserve requirement and discount rate.

18. Labor Forces

19. Why different pay? • No matter the fiscal and monetary policy of the country people most immediately see money in the form of what they are paid. So why do wages differ? • #1 Human Capital: The knowledge and skills that enable workers to be productive. • #2 Working Conditions • #3 Discrimination • #4 Government Actions (ex. The minimum wage)

20. Trends in Today’s Labor Market • Over the past couple generations the U.S. Civilian Labor Force who are those American 16 and older and who can work has been influenced by radical changes in society. • #1 The Labor Force now has an increased amount of women because of equality laws. (+) • #2 The Labor Force has become more educated and is able to handle more complex jobs. (+) • #3 Technology has radically altered the type of jobs needed to be done. (+/-) • #4 Globalization has impacted the Labor force primarily in the form of outsourcing and insourcing. (+/-)

21. Organized Labor • A Labor Union is an organization of workers that seeks to improve wages, working conditions, fringe benefits, job security, and other work related matters for its members. • The Strike is the main tool of labor unions and is when labor members stop working to convince an employer to meet union demands.

22. History of Unions • 1800s: Unions really take off in the U.S. as industries begin to emerge in larger numbers. • By 1900: Unions become more organized and influential and begin to have real political influence. • 1930s: Unions lose membership but actually gain power, thanks to New Deal legislation. Very Political. • 1940s and 1950s: The fear of communism creates a backlash towards organized labor. • Today: Labors still are a force but vary radically based on the state they operate in.

23. Labor Unions Today • A closed shop is a business where an employer can hire only union members. • A union shop is a business where workers are required to join a union within a set time period after being hired. • Some states have right to work laws where it makes it illegal to require workers to join unions (Texas is one). • Labors to this day continue to use collective bargaining where they negotiate wages and working conditions on behalf of the enitreunion membership.