The Federal Reserve and the Money Supply 10-1 Social Studies

10-1 Social Studies

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.

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.

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

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

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.

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.

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

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

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

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

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

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

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

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