10c 11d fed and banks
TRANSCRIPT
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Banksand the
Federal Reserve Systema.k.a The Fed
SOL CE: 10c 11d
The student will demonstrate knowledge of the US economy by explaining how the Federal Reserve System works with private
financial institutions to regulate the money supply.
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Banking/FED Vocabulary:• Deposit- saving money in a bank
• Loan- borrowing money from the bank
• Interest- what banks PAY you for your DEPOSITS and what they CHARGE you for a LOAN
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Banking/FED Vocabulary:• Banks- businesses that profit by
taking deposits in order to make loans
• Savings and Loans- takes deposits to make mortgage (home) loans
• Credit Unions- non-profit business owned by the customers
• Securities Brokerages- businesses that advise people on buying stocks
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Banking/FED Vocabulary:• Reserve Requirement- how much
money a bank is forced to keep back and not loan out
• Discount Rate- the interest rate the Fed charges a bank to borrow money from them
• Government Securities- bonds/notes the government sells to help pay for its expenses
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3 Characteristics of Private Financial Institutions:
1. Banks act as “go betweens”/ intermediaries for savers and borrowers.
2. Banks receive deposits and make loans.
3. Banks encourage saving and investing by paying interest (money) on deposits.
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THE FEDERAL RESERVE SYSTEM• The Federal Reserve System (Fed) is
the “banker’s bank”, the central bank of the United States.
• The Fed’s purpose is to keep the economy stable by regulating the amount of money in circulation.
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Federal Bank Locations and the regions they serve
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THE FEDERAL RESERVE SYSTEM
• The Fed slows the economy by restricting/decreasing the money supply.
• The Fed stimulates/grows the economy by increasing the money supply.
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The Fed slows the economy by taking money out of circulation:
1. Increasing the reserve
requirement
(banks keep more $)
2. Increasing
the discount rate
(banks pay more to
borrow $)
3. Selling gov’t.
securities
(less money
put into circulation)
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The Fed takes money out of the economy…
•Slows the economy by: increasing reserve, increasing discount, selling bonds.
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The FED stimulates/grows the economy by putting money into circulation:
1. Lowering
the reserve requirement
(banks lend more $)
2. Lowering the discount rate
(Banks pay less to
borrow $)
3. Purchasing
gov’t. securities
(more money put into
circulation)
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The Fed puts money into the economy by…
•Stimulates the economy by: lowering reserve, lowering discount, buying bonds