grade 8 unit 2 the fed chapter 15. warm-up 10/26 if the interest rate is low will people be likely...
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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.
Page 405 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
Page 405 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
Page 405 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
Page 405 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
Page 410 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
Page 410 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
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing
Consumer buying
Businesses
Employment
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy
Consumer buying
Businesses
Employment
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying
Businesses
Employment
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more
Businesses
Employment
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more Consumers buy less
Businesses
Employment
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more Consumers buy less
Businesses Can expand because they can afford to borrow
Employment
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more Consumers buy less
Businesses Can expand because they can afford to borrow
Business postpone expansion – borrowing is expensive
Employment
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more Consumers buy less
Businesses Can expand because they can afford to borrow
Business postpone expansion – borrowing is expensive
Employment More people are employed because businesses are growing …
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more Consumers buy less
Businesses Can expand because they can afford to borrow
Business postpone expansion – borrowing is expensive
Employment More people are employed because businesses are growing …
Unemployment starts to increase – people buying less, companies laying people off…
Production
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more Consumers buy less
Businesses Can expand because they can afford to borrow
Business postpone expansion – borrowing is expensive
Employment More people are employed because businesses are growing …
Unemployment starts to increase – people buying less, companies laying people off…
Production Production is up – people spend more, companies make more
Page 410: Question 2
Effect on… Loose Money Policy Tight Money Policy
Borrowing Is easy Is difficult
Consumer buying Consumers buy more Consumers buy less
Businesses Can expand because they can afford to borrow
Business postpone expansion – borrowing is expensive
Employment More people are employed because businesses are growing …
Unemployment starts to increase – people buying less, companies laying people off…
Production Production is up – people spend more, companies make more
Production is reduced, people are not buying…
Page 410 - #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.
Page 410 - #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