Us Federal Reserve

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What is the U.S. Federal Reserve System?

Known as the “the Fed” or “Federal Reserve”
Created in 1913 by the Congress
Serves as the U.S. central bank
Provides a secure, more stable, & flexible monetary and financial system
Supervises/regulates banking institutions
Structure of the Fed

Two-part structure: - Board of Governors - Network with 12
Federal Reserve Banks
Board of Governors and presidents of the Reserve Banks make monetary policy
Board of Governors
Government agency overlooks the Fed
Located in Washington
Seven-member Board appointed by the President and Senate serving 14-year terms appointed for long terms
Shielded from political pressures

Presidents of Reserve Banks
12 regional Federal Reserve Banks
Also known as “district banks
Nongovernmental organizations, with the publics interest on mind
In San Francisco, Boston, New York, Philadelphia, Richmond, Atlanta, Cleveland, Kansas City, Dallas, Minneapolis, St. Louis, and Chicago
Each of their branches have a board of directors
Factors influencing discount rate
Discount rate: interest rate charged to commercial banks/depository institutions on loans received from the Fed
Factors: printing and lending it out money, consumer savings goes down, government borrows money the demand will go up and the interest rate will increase
Supply ↑ then interest rates ↓
Demand ↑ then interest rates ↑
How does the discount rate affect the decisions of banks in setting their specific interest rates?

Higher discount rates = high interest rates

Lower discount rates = low interest rates
How does monetary policy aim to avoid inflation?

Maximize sustainable output and employment and maintain stable prices
Target key interest rates
Lower federal funds rate
Aims at 2% inflation
How does monetary policy control the money supply?

The Fed set the level of…...

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