Introducing 

Prezi AI.

Your new presentation assistant.

Refine, enhance, and tailor your content, source relevant images, and edit visuals quicker than ever before.

Loading…
Transcript

Required Reserves

Monetary Policy

Minimum amount of reserves that a depository institution (bank) must have to "back" transaction deposits.

The difference between actual reserves and required reserves is called excess reserves. Banks can only loan out money when they have more money than is required by the Fed.

How to control our country's economy with the circulation of Money

Discount Rate

Federal Reserve System

An interest rate charged to banks that borrow reserves directly from the Federal Reserve Bank.

An increase in this rate means a tighter money policy and a decrease means loose money policy.

Composed of presidentially appointed Board of Governors, Federal Open Market Committee, 12 Federal Reserve Banks, and private U.S. member banks. Responsible for setting monetary policy and serves as the central bank of the U.S.

Main purpose: to achieve maximum employment, stable prices, and moderate interest rates.

Graph from http://welkerswikinomics.com/blog/2012/05/08/loanable-funds-vs-money-market-whats-the-difference/

Tight Money

Loose Money

AKA Contractionary Policy.

When inflation is high, the Fed uses this monetary policy to reduce the amount of money flowing in our economy, causing interest rates to rise and slow the growth of the economy.

  • Sell Bonds
  • Increase Discount Rate
  • Increase Reserve Rate

AKA Expansionary Policy.

In case of recessions, the Fed uses this policy to increase the growth of money and credit, simultaneously bringing down interest rates and inspiring business investment which leads to economic growth.

  • Buy bonds
  • Decrease Discount Rate
  • Reduce Reserve Rate

Buying bonds means taking certificates and putting money into the system to circulate. The government buys back bonds in order to stimulate economic growth in times of need.

Selling bonds is taking money out of the system and holding it for a period of time until inflation dies down. The FOMC decides when it is necessary to either put money or take it out of the system.

Federal Open Market Committee

Learn more about creating dynamic, engaging presentations with Prezi