Taxpayer Responsibilities An Overview
What is the Federal Reserve? Source: Federal Reserve Education.org • Independent central bank • Pseudo-governmental • Non-profit • Decisions not ratified by President or Congress • Subject to congressional oversight • 12 regional Federal Reserve Banks
Federal Reserve Districts Image taken from http://fraudinsights.fnf.com/vol03iss03/
Why a Federal Reserve? First, the History of Banking Source: cnbc.com • Bank collapses in 1873, 1893 and 1907 – Congress wanted a central bank to stop this problem. • Dec. 23 1913 by Congress when the Federal Reserve Act was signed by Woodrow Wilson • The Fed exists to make monetary policy to promote economic growth nationally • Regulation of interest rates (lower rates = cheaper for banks to borrow money) • Control the availability of cash • “If the economy needs to grow faster and create more jobs, the Fed can supply more credit to banks for lending.”
Federal Reserve Structure Source: Federal Reserve Education.org • Consists of • Central governmental agency • Board of Governors (7 members selected by the President and approved by the Senate for 14-year terms) • 12 regional banks throughout the country • Supervise and regulate certain financial institutions and activities • Provide banking service to other banks, S&L’s, etc. • Involved in information / education • Federal Open Market Committee (FOMC) makes these financial decisions • 12 members (7 from the Board of Governors and 5 bank presidents) • Meet 8 times each year to set interest rates and decide whether to increase or decrease the money supply—which the Fed does by buying and selling government securities
Federal Reserve Structure Source: cnbc.com Each of the 12 districts has an actual bank, called a reserve bank, serving it. But it's not the type of bank where the average citizen deposits money. Rather, it hold the funds of the Fed, which we'll describe below. The 12 Reserve Banks are named after the city in which they are located. Those are Boston, New York, San Francisco, Philadelphia, Cleveland, Chicago, Richmond, St. Louis, Minneapolis, Atlanta, Kansas City, and Dallas. Each reserve bank is run by a staff headed by a president or chairman, who also help make up the very important Federal Open Market Committee.
Sources of income • Interest on existing investments • U.S. government securities • Foreign investments • Loans to other banks, etc. • Fees for services provided • Check clearing • Funds transfers
What does the Federal Reserve do? The Federal Reserve's responsibilities fall into four general areas: • Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices; • Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers; • Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets; • Providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments systems. • Read more at cnbc.com “What does the Fed… Do?”
How does this affect you? Source: cnbc.com • Setting the interest rates • Higher rates slow the economy • Costs to businesses for borrowing can affect the unemployment rate • Lower rates = lower borrowing costs • Cheaper to buy a home/car • Cheaper to expand a business • Buying securities • When the Fed cuts back on buying securities (quantitative easing) it is lowering the amount of money circulating in the economy—and creating less consumer spending.
Types of Taxes • Proportional taxes • Progressive • sample • Regressive • sample • More information
Entitlement Programs • What are Federal Entitlements? • http://www.pbs.org/fmc/book/11government3.htm • Examples: • Welfare • Food stamps • Veterans’ benefits • Pennsylvania Entitlements • Read this article at pahouse • Do you agree or disagree? Why?
Review Questions You are going to hand these in today. • Read this article at about Budget Deficits. In your own words, explain how a budget deficit impacts interest rates. • Why do we have a Federal Reserve Bank? • What are the 2 main functions of the Fed? • Who does the Fed answer to? • How many district s are there of the Federal Reserve? • Which district does Pennsylvania belong to? • How do interest rates affect the economy? • List 3 specific examples of entitlement programs.