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March 25, 2014

March 25, 2014. Review Money Market and Loanable Funds Market HW and Practice FRQ Notes: The Federal Reserve System Unit 3 Exam is postponed until Monday/Tuesday of next week (March 31 & April 1). The Federal Reserve System. The Federal Reserve System.

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March 25, 2014

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  1. March 25, 2014 • Review Money Market and Loanable Funds Market HW and Practice FRQ • Notes: The Federal Reserve System Unit 3 Exam is postponed until Monday/Tuesday of next week (March 31 & April 1)

  2. The Federal Reserve System

  3. The Federal Reserve System • The Federal Reserve System’s main tasks areto promote the goals of maximum employment, stabilize prices, regulate the interest rate and quantity of money to achieve low and predictable inflation and sustained economic growth. • Oversees the banking system and controls the money supply.

  4. Here is how it works: • Board of Governors • These 7 serve as the big bosses of the Federal Reserve system. • They are appointed by the President, approved by Senate (14 year terms)

  5. The Board of Governors is led by its Chair • The chair, chosen by the President from the 7 members,serves as chair for 4 years. • Current Chair: Janet Yellen - Just appointed 2/1/2014 by Obama

  6. 12 District Federal Reserve Banks: Each has its own district and monitors the banking and economic conditions in its area.

  7. Federal Open Market Committee (FOMC) • Fed’s main policy-making committee • Consists of12 members--the seven members of the Board of Governors and five of the 12 Reserve Bank presidents (Always NY) • Sets the discount rate (rate which commercial banks must pay to borrow from the FED) and decides whether to increase or decrease the money supply, which the Fed does by buying and selling government securities (bonds.)

  8. The4,000 member banks and 25,000 other depository institutions (Savings Bank,Credit Union, etc.)

  9. The Fed & Monetary Policy • The FOMC uses monetary policy to raise or lower interest rates through the money market. • Lower interest rates promote spending & investment, thus increasing employment (Expansionary Monetary Policy) • Higher interest rates prevent inflation and stabilize prices. (Contractionary Monetary Policy) • Monetary policy is transmitted through the economy through changes in Aggregate Demand. • The Fed has 3 main policy tools it can use to control equilibrium interest rates in the money market: • The Reserve Requirement • The Discount Rate • Open Market Operations (OMO’s)

  10. The Fed & Monetary Policy

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