ECON 1051 1nd Edition Lecture 51 Outline of Last Lecture I. What is Money/Why Do We Need It?II. How Do Banks Create Money?III. The Federal Reserve System IV. The Quantity Theory of Money V. Shadow BankingOutline of Current Lecture I. Federal Banka. Creationb. Three Main Entities Current LectureI. Federal Banka. Created in 1913 i. Decentralized structure b. Three Main Entities: i. 12 districts 1. They examine and supervise commercial banks in their local districts 2. Issue and replace worn out currency 3. Check clearing ii. Board of Governors 1. Twelve, appointed by the president and confirmed by the Senate a. President appoints one of them as a chair2. Headquartered in DC3. Appointed for 14 years a. Long term appointment to isolate them from political business cycles 4. Temporarily increase employment, lower interest rates right before elections at the expense of sacrificing economic stability in the long run a. This makes Fed very independent 5. Fed also has its own source of revenues, bypasses US Congress6. Holdings of securities These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.7. Board sets discount rate, approves bank mergers, testifies against US Congress, speaks to media, advises president iii. Federal Open Market Committee 1. Twelve voting members2. All seven governors, plus presidents of five district federal reserve banks3. NY FED president always votes and is a vice chair of FOMC4. Monetary policy a. Managing money supply and interest rates b. Specifically, FOMC targets federal funds rate 5. After two day meetings, the chair of FOMC holds a press conferencea. Classified and documents circulate during the meetings areavailable only after five
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