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10c 11d fed and banks
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10c 11d fed and banks

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  • 1. Banks and the Federal Reserve System a.k.a The Fed SOL CE: 10c 11d The student will demonstrate knowledge of the US economy by explaining how the Federal Reserve System works with private financial institutions to regulate the money supply.
  • 2. Banking/FED Vocabulary:
    • Deposit- saving money in a bank
    • Loan- borrowing money from the bank
    • Interest- what banks PAY you for your DEPOSITS and what they CHARGE you for a LOAN
  • 3. Banking/FED Vocabulary:
    • Banks- businesses that profit by taking deposits in order to make loans
    • Savings and Loans- takes deposits to make mortgage (home) loans
    • Credit Unions- non-profit business owned by the customers
    • Securities Brokerages- businesses that advise people on buying stocks
  • 4. Banking/FED Vocabulary:
    • Reserve Requirement- how much money a bank is forced to keep back and not loan out
    • Discount Rate- the interest rate the Fed charges a bank to borrow money from them
    • Government Securities- bonds/notes the government sells to help pay for its expenses
  • 5. 3 Characteristics of Private Financial Institutions:
    • Banks act as “go betweens”/ intermediaries for savers and borrowers.
    • 2. Banks receive deposits and make loans.
    • 3. Banks encourage saving and investing by paying interest (money) on deposits.
  • 6. THE FEDERAL RESERVE SYSTEM
    • The Federal Reserve System (Fed) is the “banker’s bank”, the central bank of the United States.
    • The Fed’s purpose is to keep the economy stable by regulating the amount of money in circulation.
  • 7. Federal Bank Locations and the regions they serve
  • 8. THE FEDERAL RESERVE SYSTEM
    • The Fed slows the economy by restricting/decreasing the money supply.
    • The Fed stimulates/grows the economy by increasing the money supply.
  • 9. The Fed slows the economy by taking money out of circulation: 1. Increasing the reserve requirement (banks keep more $) 2. Increasing the discount rate (banks pay more to borrow $) 3. Selling gov’t. securities (less money put into circulation)
  • 10. The Fed takes money out of the economy…
    • Slows the economy by: increasing reserve, increasing discount, selling bonds.
  • 11. The FED stimulates/grows the economy by putting money into circulation: 1. Lowering the reserve requirement (banks lend more $) 2. Lowering the discount rate (Banks pay less to borrow $) 3. Purchasing gov’t. securities (more money put into circulation)
  • 12. The Fed puts money into the economy by…
    • Stimulates the economy by: lowering reserve, lowering discount, buying bonds