3. Money vocabulary
โข Liquidity
โข Demand deposits
โข balances in bank accounts
that depositors can access on
demand by writing a check.
โข Central Bank
โข Controlling bank of each
country, controls monetary
policy
7. The velocity of money
(also called velocity of circulation) is the average frequency with which
a unit of money is spent in a specific period of time.
8. Without banks
โข You would have to pay cash for the
following items:
โข College ($1500-3000/year)
โข New Cars $9000-35,000
โข Small Business Loans ($10,000+)
โข Houses ($140,000-300,000)
โข Time would be spent counting and
guarding your cash.
โข Time saving + safety
9. What if the bank goes out of business?
โข $250,000 per US account
15. Why is the Chairman of the Fed sometimes
thought of as the โsecond most powerful man
in the USโ?
โข Monetary change::
increases the reserve
rate
โข Effect:
โข Monetary change:
lowers reserve rate
โข Effect:
16. The Federal Reserve
System
โข
The Structure of the Federal Reserve
System:
๏ต The
primary elements in the Federal Reserve
System are:
1) The Board of Governors
2) The Regional Federal Reserve Banks
3) The Federal Open Market Committee
17. The Fedโs Organization
โข The Fed is run by a Board of Governors, which has
seven members appointed by the President and
confirmed by the Senate.
โข Among the seven members, the most important is
the chairman. The chairman directs the Fed staff,
presides over board meetings, and testifies about
Fed policy in front of Congressional Committees.
18. The Fedโs Organization
โข
The Board of Governors
๏ต Seven
members
๏ต Appointed by the President
๏ต Confirmed by the Senate
๏ต Serve staggered 14-year terms so that one comes
vacant every two years.
๏ต President appoints a member as chairman to serve
a four-year term.
20. The Fedโs Organization
โข
The Federal Open Market Committee (FOMC) is
made up of the following voting members:
๏ตThe
chairman and the other six members of the
Board of Governors.
๏ตThe president of the Federal Reserve Bank of New
York.
๏ตThe presidents of the other regional Federal Reserve
banks (four vote on a yearly rotating basis).
21. The Fedโs Organization
The Federal Reserve Banks
๏ต12 District banks
๏ตNine directors
๏ตThree
appointed by the Board of Governors.
๏ตSix are elected by the commercial banks in the
district.
๏ตThe directors appoint the district president
which is approved by the Board of Governors.
22. The Federal Reserve System
The Federal Reserve Banks
๏ตThe New York Fed implements
some of the Fedโs most important
policy decisions.
23. The Fedโs
Organization
โข
The Federal Open Market Committee (FOMC)
๏ตServes
as the main policy-making organ of the
Federal Reserve System.
๏ตMeets approximately every six weeks to review
the economy.
24. What does โthe Fedโ do?
Controls
Money
supply
Supplies
Money
Clears
Checks
THE FED
Sets
Reserve
Requirements
Govโt
Accounting
Supervise
Banks
26. Open-Market Operations
โข
โข
The money supply is the quantity of
money available in the economy.
The primary way in which the Fed changes
the money supply is through open-market
operations.
๏ต The
Fed purchases and sells U.S. government
bonds.
๏ต DO AN EXAMPLE
๏ต Contractionary vs. expansionary
27. Fedโs Tools
โข Open market operations
โข Reserve Rate
โข Discount Rate
โข Lender of last resort
29. Changing the Discount
Rate
โข
The discount rate is the interest rate the
Fed charges banks for loans.
๏ตIncreasing
the discount rate decreases the money
supply.
๏ตDecreasing the discount rate increases the money
supply.