Federal Reserve


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Federal Reserve

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