Thursday 903

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 10 Money and Prices in the Long Run
Chapter 29 of 36 The Monetary System
Section 9 of 22
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The U.S. economy, as do all major countries, uses a fiat money system.
Dollars are money because the U.S. government declares it is, by fiat.
Fiat money has no intrinsic value as does gold.
Whenever an economy uses a fiat money system some agency must regulate the monetary system.
In the U.S. that agency is the Federal Reserve.
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The Federal Reserve (the Fed) is a central bank, an institution that oversees the banking system including regulating the economy’s quantity of money.
Other major worldwide central banks include the Bank of England, the Bank of Japan, and the European Central Bank.
The Federal Reserve was created in 1913 after bank failures in 1907.
Government policymakers were convinced the U.S. needed a central bank to ensure the health of its banking system.
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Today, the Fed is run by its Federal Reserve Board of governors.
It has seven member governors appointed by the president and confirmed by the Senate.
The governors have 14-year terms and meet in Washington D.C.
Fed governors are given long terms which gives them independence from short-term political pressures.
From the board of governors the president appoints a leader, the Chair, to a four-year term.
The Chair
· directs the Fed staff
· conducts board meetings
· testifies regularly to congressional committees about Fed policy
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The Federal Reserve System is made up of
· the seven member Federal Reserve Board in Washington D.C.
· twelve regional Federal Reserve banks located in major cities, see Figure A
The presidents of the regional Fed banks are chosen by each bank's board of directors, whose members are chosen from the region's banking and business community.
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The Fed has two related jobs:
-1- regulate banks to ensure the health of the banking system
-2- control the money supply, the quantity of money in the economy
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-1- Regulate banks
This is largely the responsibility of the regional Federal Reserve Banks.
Tasks include
· monitor each bank's financial condition
· facilitate bank transactions by clearing (processing) checks
The Fed acts as a bank's bank, making loans to banks when banks themselves want to borrow.
To maintain stability in the overall banking system it lends to financially troubled banks short of cash.
-2- Control the money supply
“Monetary policy” refers to decisions concerning the money supply.
These decisions are made by the Federal Open Market Committee (FOMC) of the Fed.
The FOMC meets every six weeks in Washington, D.C. to discuss the condition of the economy and consider changes in monetary policy, mainly whether to lower or raise the interest rate.
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control the money supply
manēsapurai o kontorōru
マネーサプライをコントロール
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Create a line graph showing how the Fed's targeted interest rate has changed over the past 5 years. ChatGPT: See Figure B.