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Transcript

  • 1. The Federal Reserve and the Money Supply
    • 10-1 Social Studies
    • Ohio Academic Content Standards:
      • 10 th Grade
      • Economics
        • Understanding functions of the Federal Reserve
  • 2. Learning Targets
    • I can explain the difference between inflation and recession.
    • I can predict what the Fed will do to reverse inflation or recession.
    • I can evaluate the changes made in the discount rate.
    • I can analyze why the Fed was created and the role it plays in regulating the money supply.
  • 3. Government and the Economy
    • The Great Depression-what did it do?!
      • More government involvement
      • Relief and reform agencies
      • More jobs=more money=more spending!
    • Taxes
      • Income, federal, state, local, excise
      • 16 th amendment=income tax!
      • Taxes bring revenue or “income” to the gov!
    • Federal Budget
      • We are in a deficit!
      • surplus=bring in more revenue than we spend
  • 4. Regulations
    • A rule or law that controls how an industry can function
    • Protection from industry abuses
    • Usually in the form of laws
    • For example: Federal Communications Commission..FCC
      • Regulated foreign and interstate communications by radio, television, cable, ect.
  • 5. The Money Supply....aka The Federal Reserve!!!!
    • Money: Anything accepted as final payment for goods and services.
    • Money Supply: Currency in the hands of the public, plus checking-type accounts.
    • The supply of money in the economy is important for price stability and economic growth.
    • Too much money in the economy can cause INFLATION
    • Too little money in the economy can lead to falling prices and falling production....DEPRESSION OR RECESSION
  • 6. The Fed
    • The Federal Reserve controls the money supply through monetary policy. Monetary policy works through encouraging or discouraging banks from making loans.
    • Monetary policy:
      • Changes in the money supply, intended to maintain stable prices, full employment, and economic growth
      • If the Fed is fighting unemployment and declining GDP, it wants to increase the money supply
      • If the Fed is fighting inflation, it wants to decrease the money supply
  • 7. Changes in the Discount Rate
    • The discount rate is the interest rate that the Fed charges on loans to banks
    • When the Fed lowers the discount rate, banks are encouraged to make more loans and the money supply increases
    • When the Fed raises the discount rate, banks are discouraged from making loans and the money supply decreases
  • 8. Changes in the Reserve Requirement
    • The reserve requirement is the minimum percentage of deposits that banks must keep on reserve to back up checking-type accounts
    • When the Fed lowers the reserve requirement, banks have more money to lend and the money supply increases
    • When the Fed raises the reserve requirement banks have less money to lend and the money supply decreases