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15 The Federal Reserve System
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  • 1. The Federal Reserve System Objective: Analyze the Federal Reserve System and how it influences the economy
  • 2. How the Federal Reserve is set up
    • The Fed is made up of about 6,000 banks across the U.S.
    • The Fed is run by seven individuals called the board of governors
    • Each member is appointed by the President
    The board as of 2008 Ben S. Bernanke Chairman Donald L. Kohn Vice Chairman Kevin M. Warsh Elizabeth A. Duke Daniel K. Tarullo
  • 3. How the Federal Reserve is set up
    • The Fed is divided into 12 districts across the U.S.
    • Each district has 1 Federal Reserve Bank
    • The main office of the Fed is in Washington D.C.
  • 4. What does the Fed do?
    • The Fed makes sure that member banks do business according to certain rules
    • Clearing checks is one service of the Fed
    • The Fed also lends money to member banks
  • 5. What if the bank fails?
    • Each bank that is a member of the Federal Reserve System must also be a member of the Federal Deposit Insurance Corporation (FDIC)
    • The Fed and FDIC will work together to make sure your money is protected
  • 6. Controlling the Money Supply
    • The other job of the Fed is to control the money supply in the U.S.
    • The fed uses two main tools for this
    • Reserve Requirement
    • Discount Rate
  • 7. Reserve Requirement
    • Is the amount of money the Fed tells banks they must keep in reserve and not use
    • It can be as much as 22 percent of the money people have put in the bank
    • The higher the number the less money banks have to loan
  • 8. Discount Rate
    • This is the amount of interest the Fed charges to loan money to banks
    • The higher the rate the less money banks want to borrow
  • 9. Tight or Easy money
    • When the Fed wants to encourage people to spend more it increases the money supply, this is called easy money
    • When the Fed wants to slow down the economy it reduces the money supply, this is called tight money
  • 10. Review
    • How many people sit on the board of governors?
    • Ans. 7
    • How many districts is the Fed divided into?
    • Ans. 12
    • What is the Discount Rate?
    • Ans. This is the amount of interest the Fed charges to loan money to banks
    • What is the Reserve Requirement?
    • Ans. Is the amount of money the Fed tells banks they must keep in reserve