MAJOR EVENTS TIMELINE
STRUCTURE & FUNCTIONS
Board of Governors
Chairman, Vice Chairman
Federal Reserve Banks (12)
Federal Reserve branches (25)
Member Banks (3,543)
• 2 basic goals, to indorse maximum bearable output and
employment and to indorse stable prices.
• The tool they use is the federal fund rate through the
open market operation, federal funds market.
• Open market operations are the tool the federal
government uses to affect the supply of reserves in the
• The FOMC is the system that is mainly in charge of going
through with the formulation and conduction of the
• They typically conduct open market operations several
times a week to prevent technical, temporary forces
from moving the effective federal funds rate too far from
the intended rate.
FEDERAL TOOL KIT DESCRIPTIONS
• Tight or Easy Monetary Policy- used to reduce the
growth of money & credit
• Discount Rate- the interest rate used in discount
cash flow analysis to determine the present value of
future cash flow
• Open Market Operations- make adjustments in the
availability and price of short term funds to banks.
This is the most important policy tool.
• Reserve Requirements- the ability of the Feds’ to
raise or lower banks’ reserve requirement.
IN DEPTH- WHO SETS THE MONETARY
• The Federal Reserve set the Monetary Policy. They
overlook the amount of money and credit is in the
US Economy and influence it as well. Influencing
this, or making changes, directly affects the interest
rate, (the cost of credit), and what happens to the
US Economy. Putting this is more simple terms, if the
cost or credit is minimized, more people will borrow
money and the economy will stir up.
• Lender of Last Resort- describing the Federal
Reserve’s role in providing funds to financial
institutions in a financial crisis
• Humphrey- Hawkins Testimony- congressional
testimony by the Federal Reserve Chairman about
the goals and objectives, and conduct of monetary
• Discount Window- lending facility through which
each Federal Reserve Bank extends and loans to
banks and other depository financial institutes.
PLAYING THE GAME
• At first it was hard to keep the economy on
track, but after playing around with numbers and
getting the hang of it, I did quite well.