grade 8 unit 2 the fed chapter 15. warm-up 10/26 if the interest rate is low will people be likely...

GRADE 8 UNIT 2 THE FED

Chapter 15

Warm-up 10/26

If the interest rate is low will people be likely to borrow more or less money from the bank?

Warm-up 10/26

If the interest rate is low will people be likely to borrow more or less money from the bank?

Low Interest rates cause people to borrow more, the interest rate is what they pay the bank to borrow money.

High Interest rates discourage borrowing.

LEQ

How does the Federal Reserve interact with the banks to stimulate the market economy?

Homework

Start studying your banking terms – vocabulary quiz on Friday.

Question 1: Terms to Know

The Federal Reserve System created by Congress in 1913 as the nation’s central banking system

Policy that involves changing the rate of growth of the supply of money in circulation in order to affect the cost and availability of credit

FED Monetary Policy

Question 1: Terms to Know

12- member committee in the Federal Reserve that meets 8 times a year to decide the course of action that the Fed should take to control the money supply

Method by which a check that has been deposited in one institution is transferred to the issuer’s depository institution.

Federal Open Market Operations

Check Clearing

Questions #2: The Federal Reserve System is made up of a Board of Governors assisted by the Federal advisory Council, the Federal Open market Committee, 12 Federal Reserve district banks, 25 branch banks and about 4,000 member banks. It is a network of banks, with power not concentrated but shared.

Organization of the Federal Reserve System

FEDERAL OPEN MARKET Committee

Board of Governors –

7 members

Federal Reserve Banks 12 Banks 25

Branches

Member Banks

Federal Advisory Council

12 members

Question #3

Functions of the FED

Clearing checks

Acting as the federal

government’s fiscal agent

Supervising member banks

Holding reserves and

setting reserve

requirements

Regulating the money supply

Supplying paper

currency

Question 1:

Monetary policy that makes credit inexpensive and abundant, possibly leading to inflation

Monetary policy that makes credit expensive and in short supply in an effort to slow the economy

Loose money policy Tight money policy

Question 1:

System in which only a fraction of the deposits in a bank is kept on hand or in reserve; the remainder is available to lend

Regulation set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district banks.

Fractional Reserve Banking

Reserve Requirement

Question 2

Effect on… Loose Money Policy Tight Money Policy

Borrowing

Consumer buying

Businesses

Employment

Production

Question 2


Borrowing Is easy

Consumer buying

Businesses

Employment

Production

Question 2


Borrowing Is easy Is difficult

Consumer buying

Businesses

Employment

Production

Question 2



Consumer buying Consumers buy more

Businesses

Employment

Production

Question 2



Consumer buying Consumers buy more Consumers buy less

Businesses

Employment

Production

Question 2




Businesses Can expand because they can afford to borrow

Employment

Production

Question 2





Business postpone expansion – borrowing is expensive

Employment

Production

Question 2






Employment More people are employed because businesses are growing …

Production

Question 2







Unemployment starts to increase – people buying less, companies laying people off…

Production

Question 2








Production Production is up – people spend more, companies make more

Question 2








Production Production is up – people spend more, companies make more

Production is reduced, people are not buying…

#3 What is the purpose of the fractional reserve system?

Banks are required to keep a fraction (currently 10%) of each person’s deposits on reserve in their vault or an account at the Fed in case one or more banking customers decides to withdraw large amounts of cash at one time.

#4. How does the money supply expand?

Banks use their excess reserves to make loans to businesses and people which creates in effect new money. Once the money is paid back to the bank it is essentially “destroyed” or disappears from the money supply. The more people borrow – the more money created- the less they borrow – the less available.

Activity 2-5 Name ______________________________ Persuasive Writing Today’s Headline Prompt: Mr. Sampson, the local convenience store owner, is upset by today’s headline. He feels that an increase in money supply will lead to high inflation and that he will have to raise his prices. He is afraid that he may have to go out of business because of it. How would you explain to Mr. Sampson that an increase in the money supply by the Federal Reserve may help him? Write an explanation to Mr. Sampson sharing how the Federal Reserve increases the money supply and how such an increase may help Mr. Sampson’s business. Be sure to use your best writing strategies for this assignment.

Federal Reserve Chairman Will Seek to Increase the Money Supply

SHARE ITSwitch papers with someone – read their explanation and give them a grade – 1 – Tried but does not answer the question2 – Answered one part of the question, but did not explain3 - Answered both parts of the question but missing

explanation4 – Answered both parts of the question and provided one

explanation5 – Answered both parts and gave two complete

explanations

grade 8 unit 2 the fed chapter 15. warm-up 10/26 if the interest rate is low will people be likely...

Documents

supply of money

money supply method

members federal reserve

federal reserve district

inflation monetary policy

branch banks

network of banks

reserve requirements