UGBA 10 Lecture Notes - Lecture 8: S&P 500 Index, Electronics, Electronic Funds Transfer

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Lecture 8
The Def and the US Global Economy
The Federal Reserve System (The Fed)
Central bank of the United States, which acts as the government's bank, serves member commercial
banks, and controls the nation's money supply
Overarching Goals of Fed
The Federal Reserve has a dual mandate
Achieve price stability (low or no inflation)
Maximize employment (atypical)
A statement of what the Fed has to do, and a statement that it has the authority to act to
achieve its aims
In this case the mandate was given in 1977 by Congress
The Functions of the Fed
The Government's Bank
The Bankers' Bank
Check Clearing
Controlling the Money Supply
Tools: Reserve Requirement
Discount Rate/Federal Funds Rate (Key Rate)
Open-Market Operations
The Two Arms of Government Policy
Fiscal Policy
Tax compared to spending
Decided politically by Congress
Managed by the Treasury
Bond operations executed by the Bureau of the Fiscal Service
About how much you spend and what you spend it on
If you spend more than you tax = expanding the economy
Putting a break on the economy = tax more
Monetary Policy
Management of money supply and interest rates
Managed by the Federal Reserve
Operates under more of a political consensus
The Tools of the Fed
Reserve Requirement
Percentage of its deposits that a bank must hold in cash or on deposit with the Fed
Discount Rate
Interest rate at which member banks can borrow money from the Fed
Federal Funds Rate (Key Rate)
Interest rate at which commercial banks lend reserves to each other, usually overnight
Open-Market Operations
A way of adding money directly into the economy
The Fed's sale and purchase of securities in the open market
Feds buys securities - money supply increases
Fed sell securities - money supply decreases
Historically has been limited to treasury securities
The Changing Money and Banking System
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