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Grade 8 Unit 2 The Fed . Chapter 15 . Warm-up 10/26. If the interest rate is low will people be likely to borrow more or less money from the bank? . Warm-up 10/26. If the interest rate is low will people be likely to borrow more or less money from the bank?
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Grade 8 Unit 2 The Fed Chapter 15
Warm-up 10/26 • If the interest rate is low will people be likely to borrow more or less money from the bank?
Warm-up 10/26 • If the interest rate is low will people be likely to borrow more or less money from the bank? • Low Interest rates cause people to borrow more, the interest rate is what they pay the bank to borrow money. • High Interest rates discourage borrowing.
LEQ • How does the Federal Reserve interact with the banks to stimulate the market economy?
Homework Start studying your banking terms – vocabulary quiz on Friday.
Page 405 Question 1: Terms to Know FED Monetary Policy • The Federal Reserve System created by Congress in 1913 as the nation’s central banking system • Policy that involves changing the rate of growth of the supply of money in circulation in order to affect the cost and availability of credit
Page 405 Question 1: Terms to Know Federal Open Market Operations Check Clearing • 12- member committee in the Federal Reserve that meets 8 times a year to decide the course of action that the Fed should take to control the money supply • Method by which a check that has been deposited in one institution is transferred to the issuer’s depository institution.
Page 405 Questions #2: The Federal Reserve System is made up of a Board of Governors assisted by the Federal advisory Council, the Federal Open market Committee, 12 Federal Reserve district banks, 25 branch banks and about 4,000 member banks. It is a network of banks, with power not concentrated but shared.
Page 410 Question 1: Loose money policy Tight money policy • Monetary policy that makes credit inexpensive and abundant, possibly leading to inflation • Monetary policy that makes credit expensive and in short supply in an effort to slow the economy
Page 410 Question 1: Fractional Reserve Banking Reserve Requirement • System in which only a fraction of the deposits in a bank is kept on hand or in reserve; the remainder is available to lend • Regulation set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district banks.
Page 410 - #3 What is the purpose of the fractional reserve system? • Banks are required to keep a fraction (currently 10%) of each person’s deposits on reserve in their vault or an account at the Fed in case one or more banking customers decides to withdraw large amounts of cash at one time.
Page 410 - #4. How does the money supply expand? • Banks use their excess reserves to make loans to businesses and people which creates in effect new money. Once the money is paid back to the bank it is essentially “destroyed” or disappears from the money supply. The more people borrow – the more money created- the less they borrow – the less available.
SHARE IT Switch papers with someone – read their explanation and give them a grade – 1 – Tried but does not answer the question 2 – Answered one part of the question, but did not explain 3 - Answered both parts of the question but missing explanation 4 – Answered both parts of the question and provided one explanation 5 – Answered both parts and gave two complete explanations
