The FEDYour Logo Here

Mr. EastwoodPacific High School

Mr. EastwoodPacific High School

Overview

Federal Reserve Board– Chairman Alan Greenspan– Serves monetary needs of government and controls monetary system

– Established in 1913 after arbitrary printing of money and wild lending behavior caused many bank collapses.

Overview…cont.

12 Regional Banks each serving a “district”

Under a “Board of Governers’– President appointed to 14-year terms

– Chairman appointed to 4 year renewable terms within the 14 year term limit

Depository Institutions

Features & Benefits

Controls creation of money by depository institutions– Legal Reserve Requirements - stated as a percentage of deposit liabilities

– Varying the discount “D” rate– Open maret operations - purchase or sale of government securities

Handles U.S. debt and cash balances

Applications

Reserve Requirements– May have more than required “excess reserves”

– Minimum can vary from 8-14% of deposit liabilities

– Requirements can be lowered or heightened depending on whether or not the FED wants to speed up or slow down the money supply.

– “money multiplier”

Applications…cont.

D-rate– Discount rate vs. consumer rate– FED can raise or lower to heat up or cool down the economy

– Higher rates slow down spending and lending

– Lower rates speed up spending and lending

Applications…cont

Open Market Operations– Government Securities

•Bonds and Treasury bills•Treasury bill - short term fed. Gov security with maturity of one year or less

•Long-term certificate promising specified sum on specified date

– FED can sell or buy securities to increase or decrease the money supply

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