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For more information, please see full course syllabus of AP Macroeconomics
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Lecture Comments (6)

1 answer

Last reply by: Professor Jibin Park
Fri Feb 20, 2015 2:54 PM

Post by Thadeus McNamara on February 20, 2015

For example 3, i understand perfectly why money supply increases, but how do you know bank reserves increase? can you write out the steps to lead to that answer?

3 answers

Last reply by: Professor Jibin Park
Mon Jul 6, 2015 3:57 PM

Post by Eugene Song on January 10, 2015

1.Fed is a private intitution and it prints out new money.
Who owns the new paper money? Goverment or the Fed shareholders?

2. Fed earns interest from buying US bonds with the new paper money.
Who owns the interest and profits of FED earned by the new paper money?

The Federal Reserve & Monetary Policy

  • The Federal Reserve was created in 1913 and is a private institution with a public component through its Board of Governors
  • The Federal Reserve includes 12 District Banks and through the Federal Open Market Committee (FOMC), the Fed controls monetary policy
  • The functions of the Fed include providing financial services, supervising and regulating banking institutions, maintaining the stability of the financial system and conducting monetary policy
  • The three conventional tools of the Fed in implementing monetary policy include changing the reserve requirement, discount rate and open-market operations
  • If the Fed raises the discount rate, increases the RRR or sells government securities, the money supply contracts
  • If the Fed lowers the discount rate, decreases the RRR or buys government securities, the money supply expands
  • Open-market operations (buying and selling of government bonds) is used to alter to target federal funds rate and is the preferred method of the Fed to control the money supply

The Federal Reserve & Monetary Policy

Lecture Slides are screen-captured images of important points in the lecture. Students can download and print out these lecture slide images to do practice problems as well as take notes while watching the lecture.

  • Intro 0:00
  • Lesson Overview 0:08
  • History of the Federal Reserve 1:23
    • Established in 1913
    • Private Institution with a Public Component
    • Board of Governors
  • The Federal Reserve Structure 3:54
    • 12 Federal Reserve Banks
    • Federal Open Market Committee
  • Functions of the Federal Reserve 5:22
    • Provide Financial Services
    • Supervise and Regular Banking Institutions
    • Maintain the Stability of the Financial System
    • Conduct Monetary Policy
  • Reserve Requirement and Discount Rate 8:00
    • Reserve Requirement
    • Discount Rate
  • Open Market Operations 10:55
    • Fed Buys or Sells U.S. Treasury Bills Through a Commercial Bank
    • How Do They Purchase It?
  • The Financial Crisis of 2008 13:31
    • Subprime Lending and the Housing Bubble
    • Fed Chair Alan Greenspan
    • Low Interest Rates
    • 2003-2006 Suprime Lending Increased in Popularity
  • Crisis and Response 16:19
    • Housing Collapse
    • Fed Bailed Our Bear Stearns and Insurance Giant AIG
    • Widespread Panic in the Financial System
    • Quantitative Easing
  • Example 1 18:45
  • Example 2 19:25
  • Example 3 20:07
  • Example 4 22:57