Ch 09 outline(1) - Chapter 9 Central Banks and the Federal...

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Macroeconomics for Today
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Chapter 14 / Exercise 7
Macroeconomics for Today
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Chapter 9: Central Banks and the Federal Reserve System Origins of the Federal Reserve System Fear of centralized power and distrust of moneyed interests guided central bank activities in the 19 th century With no central bank, banking panics became regular events, culminating in the panic of 1907. Widespread bank failures and depositor losses convinced the U.S. that a central bank was needed. Federal Reserve Act of 1913 There was a general fear of a “central banking authority” people worried that powerful Wall Street interests would manipulate the system Questions arose as to whether such a monetary authority would be private or a government institution. The Federal Reserve Act of 1913 was a compromise that created the Federal Reserve System, including elaborate checks and balances. Structure of the Federal Reserve System Design was intended to distribute power along the following dimensions: Regions of the U.S. Government and private sector interests Needs of bankers, businesses, and the public The system as it exists now includes: Twelve Federal Reserve Banks Board of Governors (BOG) of the Federal Reserve System Federal Open Market Committee (FOMC) Member Banks (around 2,800) Three policy tools of the Fed: Open market operations Discount rate Reserve requirements Twelve Federal Reserve Banks Each of the twelve districts has a main Federal Reserve Bank and at least one branch office The banks are “quasi-public” Owned by member commercial banks in the district Each branch has a board of directors which represent professional bankers, prominent business leaders, and public interests Federal Reserve Bank Functions: General Clear checks Issue new currency and remove damaged currency
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Chapter 14 / Exercise 7
Macroeconomics for Today
Tucker
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