The Federal Reserve System has four main responsibilities: 1) regulating bank holding companies and state banks, 2) supplying money and credit to maintain stable prices and full employment, 3) ensuring a smooth functioning payments system, and 4) acting as the government's bank. It has three instruments of monetary control: changing the discount rate, changing reserve requirements, and buying or selling bonds in the open market. Changing the discount rate and reserve requirements can increase or decrease the amount of money in circulation, while buying and selling bonds removes or adds money to the economy.

1. The Federal Reserve System

2. What are the Federal Reserve’s responsibilities? 1. To regulate bank holding companies and state chartered banks. 2. To supply money and credit to the economy to maintain stable prices and full employment. 3. To ensure the smooth functioning of the payments system. 4. To act as the government’s bank.

4. Change the Reserve Requirement

5. Buy or sell Bonds (open market)

6. It’s all about inflation (rise in prices)

8. Discount rate: the % rate at which the Fed loans money to other banks Discount rate is raised: costs more for a bank to get money; therefore they lend out LESS money This DECREASES the amount of money in circulation Danger: prices stay low; too much spending Discount rate is lowered: costs less for a bank to get money; therefore they lend out MORE money This INCREASES the amount of money in circulation Danger: prices rise too fast; people can’t afford Discount Rate

9. Buying on the Open Market Fed can buy and sell bonds: a debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date When the Fed SELLS bonds, money is taken out of circulation When Fed BUYS bonds, money is added to the economy

10. The Regional Banks

11. Federal Reserve Money

12. $1000

13. $10,000

14. $100,000 (Bank Transfers)

15. Gold Certificate

16. Silver Certificate