The Federal Reserve

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The Federal Reserve

• How our Central Bank is structured

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Critical Thinking

• How Why is the Fed independent from Government?

How?
Why?
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3 Primary Functions of Fed

• Regulates banks
• ensure banks follow laws (housing bubblewhat
  happened?)
• Acts as Bankers Bank
• Makes emergency loans to banks gt lender of last
  resort
• Discount rate interest rate Fed charges banks
  (currently 0.75)
• Conducts Monetary Policy
• regulates money supply to control short term
  interest rates
• Federal Funds Rate interest rate Fed sets
  (currently 0.0)

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The Federal Reserve System
Federal Reserve Board (7-Governors in
Washington) 12-District Banks
Ben Bernanke Worked at Fed since
2002 Chairmen of Fed since 2006 (Term ends Jan.
2014) Re-appointed for 2nd term 2009
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Federal Open Market Committee (FOMC)

• Main policy-making part of Federal Reserve (12
  members)
• Meets 8-times per year to vote on Monetary Policy

? Short term interest rates
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Federal Reserve in action 1999 - 2012
0.0
2012
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2 Primary Goals of Fed
What makes these 2-Goals in direct conflict?
Goal 1 Maximum output employment
Goal 2 Stable Prices
LRAS1
SRAS1
Price Level
AD1
Real GDP
Answer High GDP Low Unemployment can lead to
inflation i.e. solving goal
1 often will risk failing at goal 2
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Video Interview 1 Bernankes Plan U.S. Economy
LRAS1
SRAS1
Price Level
AD1
Real GDP