The Structure of the F ederal R eserve

1. The Structure of the Federal Reserve

2. The structure of the federal reserve Federal Open Market Committee (FOMC) Advisory Councils

3. The Federal Reserve System • Created in 1913 Board of Governors • Made up of 7 individuals • Appointed by the President for one 14-yr term • Must be approved by the Senate • One members term expires every 2 years • Chairman  Janet Yellen

4. Do all banks belong? • No • To join, banks must purchase stock in its Federal Reserve district bank

5. How does the fed it operate? • Main function is to control money supply

7. Reserve Requirement • A set percentage of deposits a bank must keep on reserve • Anywhere between 3 – 14% • Controlling the money supply: • Increase supply decrease RR (reserve requirement) • Decrease supply increase RR

8. Discount Rate • The interest rate the Fed charges member banks to borrow • When the prime rate or discount rate changes, all interest rates will change • Controlling the money supply: • Increase supply decrease DR (discount rate) • Decrease supply increase DR

9. Federal Open Market Operations (fomo) • Buying and selling securities • The Fed is the nation’s owner of securities • Controlling the money supply: • Increase supply buy securities • Decrease supply sell securities

10. The Federal Reserve constantly monitors ______________. It will increase or decrease the money supply by increasing or decreasing the interest rates. The ________________ reacts to decisions by the ____________________. INFLATION STOCK MARKET FEDERAL RESERVE

11. Fractional Reserve Banking www.classzone.com

12. THE BUSINESS OF BANKS

13. The Role of Banks • Banks are a business with the same profit making goals of any other business. • They make a profit by providing services

14. Role of banks • They provide safety and interest income for depositors • A source of loans for people in business • How does a bank make a profit? a. By charging higher rates of interest to borrowers then they pay to depositors b. Credit cards

15. Bank assets and liabilities An asset is something you own Liabilities are something you owe. Checking and saving account deposits Loans from the Federal Reserve Money owed to stockholders • Loans • Bonds • Real estate • Cash reserves

16. Federal Deposit Insurance Corp. Why created? • Stop runs on banks How much? • $250,000

17. Competition for banks • Tax shelters, 401K plans, Roth IRA’s • The Stock Market • Credit Unions

18. Modern banking

19. Common loans banks make Mortgage • Real estate • Lender & borrower • Monthly • Lender

20. Credit Cards • Issued by banks to users • Pays; lends • Repaying

21. BANKING DEREGULATION

22. Bank Mergers • Larger banks acquired smaller ones • Small ones joined forces to enter different geographic locations BENEFITS Increased competition which keeps interest rates low. Increase in the number of bank branches. CONS More banks to choose from. Big banks show less interest in individual customers.

23. Financial Services Act 1999 • Allowed banks to sell stocks, bonds, and insurance • Didn’t really work out

24. Technology & Banking ATM’s • Allows you to make transactions without seeing a bank officer Debit Cards • Withdraws money right from your account Stored-value cards • AKA gift cards

25. Tax bases & structures

26. Most Common Tax Bases • Individual income tax • Corporate income tax • Sales tax • Property tax

27. Individual Income Tax • Tax based on an individual’s income from all sources

28. Corporate Income Tax • Tax based on a corporation’s profits

29. Sales Tax • Tax based on the value of goods or services at the time of sale. http://www.tax.ny.gov/pdf/publications/sales/pub718.pdf http://www.earthodyssey.com/sales_tax.html

30. Property Tax • Tax based on the value of an individual’s or business’s assets, generally real estate.

31. TAX STRUCTURES

32. Proportional Tax • Takes the same % of income from all taxpayers regardless of how much they make • “FLAT TAX”

33. Progressive Tax • Places a higher % rate of taxation on higher-income earners • The Federal Income tax

34. Regressive Tax • Takes a larger % of income from people with lower incomes • SALES • PROPERTY

35. Why tax incentives? • The gov’t may encourage behavior that it believes is good for the economy and for society http://thehotellafayette.com/

36. What is a sin tax? • Taxes imposed on products or activities considered to be unhealthful or damaging to society

37. Withholding • Money taken from a worker’s pay before the worker receives it • Also called the payroll tax

38. Ability-to-pay Principle • People with higher incomes not only pay more in total taxes but also pay a higher percentage of their income in taxes

39. THE FEDERAL BUDGET

42. MANDATORY SPENDING WHAT ARE THE SPENDING CATEGORIES FOR THE FEDERAL BUDGET? DISCRETIOARY SPENDING INTEREST ON DEBT

43. Mandatory Spending Spending that is automatically budgeted without government action & is based on existing laws Ex. Medicare, medicaid, social security, food stamps.

44. Discretionary Spending The President must make his request and Congress must approve each year. Ex. International affairs, military, education programs,

45. Interest on debt The cost of the government borrowing money expenditures exceed revenues in a one year period Deficit – expenditures exceeding revenues Debt – cumulative value of all previous deficits

47. National Debt

48. What is national debt? • The total amount of money that the government owes • Deficit Spending • - A government spends more than it collects in revenue

49. $17,526,904,035,122.81 The estimated population of the United States is 317,357,309; so each citizen’s share of this debt is $55,102.18! The National Debt has continued to increase an average of $2.54 billion per day since Sept. 30, 2012! http://www.usdebtclock.org/