ECON 1102 Lecture 15: macro chapter 15

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University of Minnesota Twin Cities
ECON 1102
Phelan Christopher

Macro Chapter 15 1 of7 Chapter 15: The Federal Reserve System and Open Market Operations I. What is the Federal Reserve System A. Today, the money we use in the United States is provided by just one bank, the Federal Reserve. B. If the Federal Reserve is a bank, who are its customers? 1. The Fed is both the governments bank and the bankers bank. a) As the governments bank, the Fed maintains the bank account of the U.S. Treasury. When you write a check to the IRS to pay your taxes, the money ends up in the Treasurys account at the Fed. In addition to receiving money, the U.S. Treasury also borrows a lot of money and the Fed manages this borrowingthat is, the Fed manages the issuing, transferring, and redeeming of U.S. Treasury bonds, bills, and notes. Since the U.S. Treasury is by far the worlds largest bank customerit has more income and it also borrows more than any other bank customerthe Federal Reserve is a large and powerful bank. b) The Fed is also the bankers bank. Large private banks keep their own accounts at the Fedin part, because some banks are required to hold accounts with the Federal Reserve and in part because other banks and nancial institutions want a safe and convenient place to hold their money. The Fed also regulates other banks and it lends money to other banks. c) The Fed manages the nations payment systemthe system of accounts that makes it possible to write checks from one bank to anotherand it protects nancial consumers with disclosure regulations. Many of these and other duties are shared with other state and federal agencies. II.The U.S Money Supplies A. Money: a widely accepted means of payment B. The most important assets that serve as means of payment in the United States today are: 1. Currencypaper bills and coins. 2. Total reserves held by banks at the Fed. 3. Checkable depositsyour checking or debit account. 4. Savings deposits, money market mutual funds, and smalltime deposits. C.
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