THE FEDERAL RESERVE, ECONOMIC CONDITIONS AND INTERESTReview!

THE FEDERAL RESERVE SYSTEM

Decentralized “Central” BankEstablished by an Act of Congress in 1913

when Woodrow Wilson was PresidentConsists of the Board of Governors and 12

Federal Reserve District Banks

GoalsTo establish and maintain the public’s

confidence in our country’s banking systemTo maintain a stable and growing economy

THE BODIES OF THE FEDERAL RESERVE Board of Governors

Primary responsibility is conducting monetary policy

Has 7 “governors” who are appointed by the President and confirmed by the US Senate

No two of these governors can come from the same district

Chairmen is Ben Bernanke 12 Federal Reserve District Banks

Responsible for regulating the banks and providing them a supply of currency

Banker’s Bank

12 FEDERAL RESERVE DISTRICTS

MONETARY POLICY

To help ensure a stable economyLow unemploymentPrice stability

Stable prices are directly impacted by the amount of money and credit in the economy (money supply)

MONEY SUPPLY IMPACT As the Money Supply decreases…

Demand for products and services decreaseFED sells securities to decrease supplyCould lead to RECESSION

FED tries to avoid recession by increasing money supply and lowering interest rates

Current Event!

As the Money Supply increases…Demand for products and services increaseFED buys securities to increase supplyCould lead to INFLATION

Inflation is defined as rise in goods and services in an economy over a period of time

ECONOMIC INDICATORS

Gross Domestic Product Total dollar value of goods and services produced

in a county in one year “Standard of Living” US is one of highest in the world and is

continuing to increase

Consumer Price Index Average price level of a fixed basket of goods

and services purchased by consumers Measures rate of inflation Continues to rise

Unemployment Number of people without jobs who are willing

and able to work Impacts consumer spending Increased in 2009, steady in 2010, expected to

decrease in 2011

EARNING INTEREST

Simple Interest

I=PRT

Compound Interest

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rA P

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