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The Federal Reserve System and the Money Supply Process

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The Federal Reserve System and the Money Supply Process Chap 12 (8th edition), Mishkin * * Goals of monetary policy (in order of priority) 1. 2. – PowerPoint PPT presentation

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Title: The Federal Reserve System and the Money Supply Process


1
The Federal Reserve System and the Money Supply
Process
  • Chap 12 (8th edition), Mishkin

2
  • Goals of monetary policy (in order of priority)
  • 1.
  • 2.
  • 3.
  • 4.
  • 5.
  • 6.

3
  • II.Brief structure of the FED
  • The FEDERAL RESERVE SYSTEM consists of
  • 12 regional Federal Reserve Banks (FRBs) which
    have jurisdiction over the 12 Federal Reserve
    districts into which the country is divided.
  • Main functions are,
  • (i) ____________
  • (ii) ____________
  • (iii) ____________
  • (iv) ____________
  • The Board of Governors (BOG)
  • 7 members appointed by the President, each
    serving one full nonrenewable 14-year plus part
    of another term (if coming in place of someone
    else)
  • chairman serves 4-year renewable terms

4
  • The Federal Open Market Committee (FOMC)
  • meets about every 6 weeks, determines and
    conducts monetary policy
  • consists of 7 BOG members president of the New
    York FRB 4 presidents chosen from the other
    FRBs (the other 7 presidents participate but do
    not vote)
  • Three tools of monetary policy are
  • (i) ___________
  • (ii) ___________
  • (iii) ___________

5
Assets Reserves 10m Liabilities Deposits 100 m
Loans 90 m Securities 10 m Bank capital 10 m
Q1. Suppose the FED purchases 5m worth of T-bonds
from banks (Open market purchase). How does this
affect the balance sheet of the bank? Q2.
Suppose the FED sells off 5m worth of T-bonds to
banks (Open market sale). How does this affect
the balance sheet of the bank? Conclusion Open
market purchase ________ cash reserves of banks.
Open market sale _______ cash reserves of banks.
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