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Macroeconomics 111 - Chapter 14

Macroeconomics 111 - Chapter 14 - Chapter 14 Monetary...

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Chapter 14: Monetary Policy The Federal Reserve System -The Federal Reserve System “the Fed” serves as the central bank for the U.S. -The central bank typically has the following functions: -It is the banks’ bank : it accepts deposits from and makes loans to commercial banks -It acts as banker for the federal government -It controls the money supply -Performs certain regulatory functions for the financial industry -The primary elements in the Federal Reserve System are: 1. The Board of Governors 2. The Regional Federal Reserve District Banks (FRBs) 3. The Federal Open Market Committee The Federal Reserve Banks (FBRs) -12 District banks -9 directors -The directors appoint the district president who is approved by the BoG The Board of Governors -7 members -Appointed by the President -Confirmed by the Senate -Serve a 14-year term -Terms are staggered so that one comes vacant every two years -President appoints a member as Chairman to serve a four-year term Federal Open Market Committee - Meets about every 6 weeks to review the economy -Made up of the following voting members -7 members of the BoG -5 of the FRB presidents for a total 12 members Functions of the Fed - Banking Services and Supervision - It supplies currency to banks through its 12 district banks - It holds the reserves of banks in the district bank of each bank - It processes and routes checks to banks through its district banks and processing centers - It makes loans to banks – it is the “lender of last resort”, the “bankers bank” - It supervises and regulates banks , ensuring that they operate in a sound and prudent manner - It is the banker for the U.S. government . It sells government securities (bonds) for the U.S. Treasury Controlling the Money Supply
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- The money supply is varied through the course of the year to meet seasonal fluctuations in the demand for money. This helps keep interest rates less volatile.
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