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Monetary Policy

Monetary Policy. Today’s LEQ : How do Federal Reserve decisions affect the stability of the economy?. What is the Federal Reserve?. “the Fed” Our nation’s central banking system Serves the banking needs of the government and of individual banks

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Monetary Policy

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  1. Monetary Policy Today’s LEQ: How do Federal Reserve decisions affect the stability of the economy?

  2. What is the Federal Reserve? • “the Fed” • Our nation’s central banking system • Serves the banking needs of the government and of individual banks • Regulates the nation's banking system & monitors and regulates the nation's money supply through monetary policy (actions the Fed takes to influence real GDP & the rate of inflation)

  3. Structure of the Fed • Overseen by the Board of Governors • Headquartered in Washington D.C. • Seven members appointed by the Prez & approved by the Senate • The Prez also appoints, from among these seven members, the chair of the board of Governors (with Senate approval) Ben Bernanke (2006 - ?)

  4. PAUSE... • Video Clip • Timeline Activity • Use pages 415-416 to create an annotated timeline showing the history of central banking in the U.S.

  5. Structure of the Fed Board of Governors Chairman of the Fed Serves four-year term, which can be renewed Acts as main spokesperson for the Fed • Serve fourteen-year terms • Terms are staggered • Cannot be reappointed • Geographical restrictions ensure no one district is over-represented Think, Pair, Share: Why do you think the terms are set up this way?

  6. Twelve District Reserve Banks • The Fed is divided into twelve districts • One Fed Reserve Bank is located in each • Each bank’s board is made up of nine directors • Member banks elect 3 bankers & 3 leaders in business • The remaining 3 are appointed by the Board of Governors • District Prez is elected from among the nine directors

  7. Member Banks • All nationally chartered banks are required to join the Federal Reserve System • Remaining members are state-chartered that join voluntarily • Each of the app. 4,000 Fed member banks contributes a small amount of money to join the system • In return, they receive stock in the system • Fed = privately owned Think, Pair, Share: What are the benefits of having a privately owned central bank versus publicly owned?

  8. PAUSE… • Using your class notes and pages 416-418 in your textbook, create a diagram showing the structure of the Federal Reserve • Provide a brief description for each part of the structure

  9. Federal Advisory Council • Collects info about each district and reports to the Board of Governors about economic conditions within their districts • Consists of 1 member from each district (12 in total)

  10. Federal Open Market Committee • Makes key decisions about interest rates and the growth of the U.S. money supply • Members are drawn from the Board of Governors & the 12 district banks • All 7 members of the Board of Governors sit on the FOMC • 5 of the 12 district bank presidents also sit on the committee – NY is permanent member while the rest serve 1-year terms on a rotating basis • After meeting with the FOMC, the chairman of the Fed announces decisions to the public • Announcements from the FOMC have a huge impact! Think, Pair, Share: What kind of impact do you think these announcements have?

  11. Enough history…What does the Fed do?! • Functions of the Fed – Graphic Organizer • Use pages 420-423 to complete the provided chart outlining the main functions of the Fed • Be sure to include and define any bolded vocabulary

  12. You keep mentioning “Money Supply”… • Use pages 258-259 and page 422 to answer the questions on money supply • Be prepared to compare/contrast M1, M2, and M3

  13. Quiz on Thursday, 10/11!!! • Covers LEQ3 – Monetary Policy • History/Functions of the Fed • Money Supply • Tools of the Fed

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