Economics 52609 http:students'resa'netmilewski

1
Economics 5/26/09 http//students.resa.net/milews
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• OBJECTIVE Demonstration of Chapters1314 and
  begin examination of Monetary Policy.
• I. Administrative Stuff
• -attendance
• -distribution of test
• II. Chapter1314 Test
• III. Journal 37 pt.A
• - Read Profiles in Economics p.414
• -Answer questions (1-2) p.414
• IV. Journal 37 pt.B
• -notes on monetary policy

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The Weeks Ahead

• Chapter15 Test Thursday June 4th
• Chapter17 Test (will be included on Final)
• Final Exam Review Next Week
• Journals will be due Monday June 8th
• Finals Hours 1,2,3 Wednesday June 10th
• Finals Hours 45 Thursday June 11th

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Monetary Policy

• Monetary policy the expansion or contraction of
  the money supply in order to influence the cost
  and the availability of credit.
• In English, when the Fed raises interest rates
  the amount of money in the economy gets smaller.
• When the Fed lowers interest rates, the amount of
  money in the economy gets bigger.
• Higher interest rates encourage people to save
  money.
• Lower interest rates encourage people to spend
  and borrow money.

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Structure of the Fed
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How does the Fed influence interest rates?

• Fractional reserve system requires banks and
  other depository institutions to keep a certain
  percentage of their deposits on hand as legal
  reserves.
• Legal reserves consists of coins and currency
  held in the banks vault and the currency it has
  on deposit with the Federal Reserve.
• The Fed requires that banks keep a reserve of 12
  against demand deposit accounts.

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How Banks Operate

• You deposit 100 in your savings account.
• The bank MUST keep 12 of that 100 on reserve.
  (They must keep 12)
• The bank loans out the other 88.
• If the person who borrows the money puts it in a
  checking account, the 88 is treated as a new
  deposit and 12 or 10.56 of it must be set aside
  as a reserve. The other 77.44 can now be
  loaned out.
• This is the multiplication of the money supply.

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Example of Fractional Reserve at 20

• Ch15 sec2 p.419

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Tools of Monetary Policy

• If the Fed wants the money supply to grow they
  can do the following
• 1.) Lower the interest rate
• 2.) Lower the reserve requirement
• 3.) Buy securities (buy bonds)
• This is known as easy money policy.

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Tight money policy

• If the Fed wants the money supply to contract, or
  slow they can do the following
• 1.) Increase the interest rate
• 2.) Increase the reserve requirement
• 3.) Sell securities (sell bonds)
• This is known as tight money policy.

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Tight money policy
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The Role of the Fed

• Main goal of the Fed Open Market
  Committeecontrol inflation
• How can the Fed control inflation?
• 1.) Change the interest rate
• 2.) Change the reserve requirement
• 3.) Open Market Operations - Buy or Sell
  securities (bonds)
• buy increases the money supply
• sell decreases the money supply

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Economics 5/27/09 http//students.resa.net/milews
ki

• OBJECTIVE Examine the Role of the Federal
  Reserve.
• I. Journal 38 pt.A
• -Read The Global Economy p.420
• -Answer questions (1-3) p.420
• II. Return of Chapter1314 Test
• III. Journal 38 pt.B
• -questions on Fed Film What should the Fed do?

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The Role of the Fed

• Main goal of the Fed Open Market
  Committeecontrol inflation
• How can the Fed control inflation?
• 1.) Change the interest rate
• 2.) Change the reserve requirement
• 3.) Open Market Operations - Buy or Sell
  securities (bonds)
• buy increases the money supply
• sell decreases the money supply

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Fed Video

• 1.) What is the role of the Fed?
• 2.) What causes inflation?
• 3.) What happened to the cost of a bagel when the
  money supply was increased?
• 4.) How does the Fed determine the money supply?
• 5.) Why do people spend money when inflation
  hits?
• 6.) What were fears of the Fed if inflation
  continued to rise?
• 7.) What portion of the money supply is in the
  form of cash and coins?

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• 8.) What was the prime rate in 1980?
• 9.) What did this rate do to the housing and auto
  industry?
• 10.) What happened to the unemployment rate when
  the money supply shrank?
• 11.) What happened to the inflation rate?
• 12.) What happened to the unemployment rate in
  1984?
• 13.) What role does the Federal Reserve District
  President play?
• 14.) How has the Globalization of the economy
  effected the role of the Fed?

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Economics 5/28/09 http//students.resa.net/milews
ki

• OBJECTIVE Examine the role of Banks.
• I. Administrative Stuff
• -Attendance
• II. Film Modern Marvels Banks
• -questions on film about Banks

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Economics 5/29/09 http//students.resa.net/milews
ki

• OBJECTIVE Examine the Money Banking.
• I. Chapter15 Guided Readings
• Complete the following activities due today!
• -Chapter15 section1 Guided Reading
• -Chapter15 section2 Guided Reading
• -Chapter15 section3 Guided Reading
• -Chapter15 Enrichment
• II. Chapter15 Review
• -Review for Chapter15 Test