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THE FEDERAL RESERVE SYSTEM
Decentralized “Central” BankEstablished by an Act of Congress in 1913
when Woodrow Wilson was PresidentConsists of the Board of Governors and 12
Federal Reserve District Banks
GoalsTo establish and maintain the public’s
confidence in our country’s banking systemTo maintain a stable and growing economy
THE BODIES OF THE FEDERAL RESERVE Board of Governors
Primary responsibility is conducting monetary policy
Has 7 “governors” who are appointed by the President and confirmed by the US Senate
No two of these governors can come from the same district
Chairmen is Ben Bernanke 12 Federal Reserve District Banks
Responsible for regulating the banks and providing them a supply of currency
Banker’s Bank
MONETARY POLICY
To help ensure a stable economyLow unemploymentPrice stability
Stable prices are directly impacted by the amount of money and credit in the economy (money supply)
MONEY SUPPLY IMPACT As the Money Supply decreases…
Demand for products and services decreaseFED sells securities to decrease supplyCould lead to RECESSION
FED tries to avoid recession by increasing money supply and lowering interest rates
Current Event!
As the Money Supply increases…Demand for products and services increaseFED buys securities to increase supplyCould lead to INFLATION
Inflation is defined as rise in goods and services in an economy over a period of time
ECONOMIC INDICATORS
Gross Domestic Product Total dollar value of goods and services produced
in a county in one year “Standard of Living” US is one of highest in the world and is
continuing to increase
Consumer Price Index Average price level of a fixed basket of goods
and services purchased by consumers Measures rate of inflation Continues to rise
Unemployment Number of people without jobs who are willing
and able to work Impacts consumer spending Increased in 2009, steady in 2010, expected to
decrease in 2011