Civics Chapter 24 Section 2

A Board of Governors (how many are there) is appointed by the President and he selects one to chair the board for a ... year term.

A Board of Governors (7) is appointed by the President and he selects one to chair the board for a 4 year term.

Tight Money Policy

A course of action undertaken by the Federal Reserve to constrict spending in an economy that is seen to be growing too quickly, or to curb inflation when it is rising too fast.

What else does the FED do

Acts as the government's bank. Government deposits revenues in the FED and withdraws it to buy goods.Sells U.S. government bonds and Treasury bills, which the government uses to borrow money.Issues the nation's currency. Government agencies produce the money, but the FED controls its circulation.

The U.S. is decided into 12 Federal Reserve Districts, where r they?

Boston Philadelphia NY Cleveland Richmond Atlanta Chicago St. Louis Minneapolis K.C. Dallas San Francisco Each has one main Federal Reserve Bank and most have branch banks

Buying bonds from investors puts more cash into investors hands thus ... the money supply; this shifts the supply curve of money to the right lowering interest rates

Buying bonds from investors puts more cash into investors hands thus increasing the money supply; this shifts the supply curve of money to the right lowering interest rates

What can Tight Money Policy do?

Can lead to recession Difficult to borrow Consumers buy less No business expansion Unemployment increases Production decreases

Monetary Policy

Controlling the supply of money and the cost of borrowing money (interest rates) according to the needs of the economy.

What can Loose Money Policy lead to?

Easy to borrow Consumers buy more Business expansion Employment increases Spending increases

What did banks do before the central bank?

Established in 1913, the government did not have the money to set up the central bank, larger banks had to help by buying stock into it.

Can the FED adjust its actions when needed

FED can always adjust its actions when needed

... is the FEDs major policy making group.

Federal Open Market Committee (FOMC) is the FEDs major policy making group.

Federal Open Market Committee (FOMC) makes decisions that...

Federal Open Market Committee (FOMC) makes decisions that affect the economy as a whole by manipulating/controlling the money supply

Federally chartered commercial banks must be members of the ...?

Federally chartered commercial banks must be members of the FED; state chartered banks may join

If the FED wants a higher interest rate, it contracts ..., which moves the supply curve to the left.

If the FED wants a higher interest rate, it contracts the money supply, which moves the supply curve to the left.

If the FED wants a lower interest rate, it expands the ... which moves the supply curve to the right.

If the FED wants a lower interest rate, it expands the money supply, which moves the supply curve to the right.

If the FED wants to slow down the economy, discount rates are ... to discourage borrowing. This contracts the money supply and raises interest rates

If the FED wants to slow down the economy, discount rates are raised to discourage borrowing. This contracts the money supply and raises interest rates

If the FED wants to stimulate the economy, it ... the discount rate.

If the FED wants to stimulate the economy, it lowers the discount rate.

When banks need money who do they borrow it from?

It is the bank for banks; when banks need money, they borrow from the FED

... rates encourage banks to borrow from the FED and that means more loans to their customers (lower interest rates)

Lower rates encourage banks to borrow from the FED and that means more loans to their customers (lower interest rates)

Manipulation of interest rates is key when trying to influence ... and ...

Manipulation of interest rates is key when trying to influence business investments and consumer spending

Member banks buy ... and ...

Member banks buy stock in the FED and earn dividends from it.

Member banks ... keep a certain % of their money in the Federal Reserve Banks as a reserve.

Member banks must keep a certain % of their money in the Federal Reserve Banks as a reserve.

Loose Money Policy:

Much Money is available at relatively low interest rates, so the economy expands.

Officials of the district banks serve on the FEDs advisory councils which keep the FED informed of...

Officials of the district banks serve on the FEDs advisory councils which keep the FED informed of: - economic conditions within each district - financial institutions - issues related to consumer loans

Selling bonds to investors takes cash out of investors hands thus ... the money supply; this shifts the supply curve of money to the left raising interest rates

Selling bonds to investors takes cash out of investors hands thus decreasing the money supply; this shifts the supply curve of money to the left raising interest rates (Can be done more quickly this way than by allowing politicians to argue their views on Capitol Hill.)

The Board of Governors is supposed to be ... of the President and Congress

The Board of Governors is supposed to be independent of the President and Congress

The FED can change interest rates by changing the...

The FED can change interest rates by changing the money supply

The FED (Can or Can't) raise the reserve requirement to reduce the money banks have available to lend.

The FED can raise the reserve requirement to reduce the money banks have available to lend.

The FED manipulates the money supply by 3 means...

The FED manipulates the money supply by 3 means: - discount rate - reserve requirement - open market operations

The FED oversees...

The FED oversees most large commercial banks. It can block a merger between banks if the merger would lessen competition. Oversees the international business of American banks and foreign banks that operate in this country. Enforces laws that deal with consumer borrowing; creates laws that require lenders to spell out the details of a loan before a consumer borrows

Is the Federal Reserve System (FED) is the central bank of the U.S.

The Federal Reserve System (FED) is the central bank of the U.S.

Open Market Operations

The purchase or sale of U.S. government bonds and Treasury bills.

Discount Rate

The rate the FED charges member banks for loans.

Without political pressure, economic decisions can be made ... in the countries best interest.

Without political pressure, economic decisions can be made freely in the countries best interest.