1. Week of March 21AGENDA GPS: SSEMI1b & SSEMA2 Raider Prep (Do Now): TODAY’S DO NOW Raiders Learn (Lesson): Notes: Monetary Policy: Tools of the FED Raiders in Action (Learning Assessment): Structure of the FED Graphic Organizer CW: Money Multiplier Raiders Take Out (Homework): QUIZ FRIDAY TA5 Quiz Monday
2. Georgia Performance Standards: SSEMI1 (Social Studies Economics Micro #1) The student will describe how households, businesses, & governments are interdependent & interact through the flows of goods, services, & money. Explain the role of money & how it facilitates exchange. SSEMA2 (Social Studies Economics Macro #2) The student will explain the role & functions of the Federal Reserve System. Describe the organization of the Federal Reserve System.
3. Georgia Performance Standard Social Studies Economics Macro #2 (SSEMA2) The student will explain the role & functions of the Federal Reserve System. Describe the organization of the FED. Define monetary policy. c. Describe how the Federal Reserve uses the tools of monetary policy to promote price stability, full employment, & economic growth.
5. Macroeconomics: Focus on the national economy & the role of the gov’t in it The U.S. Gov’t uses 2 broad methods of managing the economy/ money supply Fiscal Policy Monetary Policy
6. Monetary Policy: actions taken by the Fed to expand or contract the money supply to affect credit & business activity Expansionary Monetary Policy (E) = “loose”/ “easy” money policy; putting money into the economy; money is “created” Contractionary Monetary Policy (C) = “tight” money policy; taking money out of the economy; money is “destroyed”
7. RR – Reserve Requirement OMO – Open Market Operations D – Discount Rate Tools of the Fed
8. OMO E = BUY Securities C = SELL Securities Most Important Tool Most Frequently Used Tool
9. RR % of bank deposits that must be held in reserve & cannot be loaned (vault cash) Very powerful & infrequently used because it hits all banks at one time E = RR more $ available for banks to loan C = RR Reduces $ available for loans
10. RR Today’s RR = 7- 10% Money Multiplier (M) = 1/RR How much in demand deposits (“new $”) can be generated from a deposit of $1
11. Example: RR = 20% = 20/100 = 1/5 So M=1/RR = 1/ 1/5 = 1 X 5/1 = 5 This means that for every new dollar deposited, the bank can generate $5 in “new” loan money So, if M = 5, a $10,000 deposit generates $50,000 in new loan money (deposit X M; $10,000 X 5 = $50,000)
12. CW 10/5/10: Money Multiplier RR = 25%, what is the money multiplier (m)? RR = 10%, what is the money multiplier (m)? If M = 4, what is the amount of new money generated on a $20,000 deposit? 4. If M = 2, what is the amount of new money generated on a $5,000 deposit? 5. What is the amount of new money generated on a $200 deposit if RR = 33%? Answers: RR = 25% = 25/100 = ¼ so M = 1/RR = 1/ ¼ = 1 X 4/1 = 4 RR = 10% = 10/100 = 1/10 so M = 1/RR = 1/ 1/10 = 1 X 10/1 = 10 4 X $20,000 = $80,000 2 X $5,000 = $10,000 RR = 33% = 33/100 = 1/3 so M=1/RR = 1/ 1/3 = 1 X 3/1 = 3 so 3 X $200 = $600
13. D Interest Rate the Fed charges banks to borrow money from it E = D; banks borrow more $, so loan more $, which people spend C = D; banks borrow less $, so loan less $, people spend less Most Dramatic & Weakest Tool
14. When should the Fed use an Expansionary (E) monetary policy? During a recession or depression (economy slows down too much)
15. When should the Fed use an Contractionary (C) monetary policy? During an inflation period or when the economy grows too fast
16. Money supply is composed of: M1 Money $ that can be spent immediately Examples: 1. currency, coin (cash) 2. checkable deposits (demand deposits), debit cards 3. travelers checks
17. “Near Money” can be turned into currency relatively easily but involves an extra step Examples: 1. savings accounts 2. time deposits (bonds, cd’s) 3. stock, mutual funds M2 = M1 + Near Money
18. Structure of the Federal Reserve System _________________________________________ (______) Primary Function:_________________________________________ Tools of the FED Tool Contraction Expansion ____________________________________________ 2. _____________________________________________ 3. _____________________________________________ #________ FED District Banks #________ FED Branch Banks Thousands of Member Banks
