Call to OrderPresident Obama

says that the government doesn’t

have enough money to pay for all

of the programs that he wants.

Why doesn’t he just print more

money?

Why don’t you just print more money?If you said “inflation” you are right!When there’s too much of something, it loses its value.

What happens to the money in your pocket if the gov’t prints up $10,000,000,000 tomorrow?

It would be worth a little bit less than it was

before because now there’s more money

around

Maybe your dollar buys a candy bar today…

… but only a pack of gum

tomorrow

Why don’t you just print more money?But this can easily spiral out of control… especially if the government keeps printing more and more

money. After World

War I, Germany had to pay

other countries a lot of money in exchange for

starting the war. Their

economy was a wreck, so they just printed up

billions of dollars.

These children are playing with stacks of bills

that they turned into building

blocks

This woman is burning the

money to heat her home

because it’s cheaper than buying coal

Why don’t you just print more money?

In the beginning, about 6000 Zimbabwea

n dollars (Z$)

equaled $10 US

The same sort of thing was going on in Zimbabwe not long ago…

In a matter of a few years, inflation exploded because Zimbabwe’s

government kept printing currency

If a candy bar cost $1 in 2007, by mid 2008 it cost

$230,000,000

$100 Billion bough

t 3 eggs.

Today’s ObjectiveStudents will be able to understand the influence of the Federal Reserve Bank on Monetary Policy by

Completing guided notes Examining the effects of monetary

policy on the money supply Completing an job performance

evaluation for Paycheck #3

Monetary Policy Policies that affect the nation’s

supply of money and credit

Goals of Monetary Policy

Stable Prices

Consistent Economic

Growth

FullEmployme

nt

The Federal Reserve (The Fed)

The central bank for the U.S. Gov’t Purpose is to regulate money and

ensure a stable economy

The Fed

Jobs of the Fed:

Prints money Is the gov’t’s

bank Regulates other

banks Makes loans to

banks Controls the

supply of money

Where’s Your Fed?

Open Market Operations

Buying and selling securities (loans to the gov’t)

The Fed prints money and sells loans to banks

Bank of America then loans out

money to citizens or businesses

Then they use it to buy stuff that they want

Definition SituationEffect on the

Money Supply

Open Market Operations:

Buying and selling securities (loans to the gov’t)

The Fed buys up securities

_______________the Money Supply

The Fed sells securities

_______________the Money Supply

Reserve Requirement:  DECREASES

the Money Supply

  INCREASESthe Money Supply

Discount Rate: 

____________________ the Money Supply

 ____________________ the Money Supply

DECREASES

INCREASES

Reserve Requirement The amount of money that the Fed

requires banks must hold on to (reserve)

High Reserve Requirement means that

banks have less money to loan

Low Reserve Requirement means that

banks have more money to lend.

Definition SituationEffect on the

Money Supply

Open Market Operations:

Buying and selling securities (loans to the gov’t)

The Fed buys up securities

INCREASESthe Money Supply

The Fed sells securities

DECREASESthe Money Supply

Reserve Requirement:The amount of money that the Fed requires banks must hold on to (reserve)

  DECREASESthe Money Supply

  INCREASESthe Money Supply

Discount Rate:The interest rate charged by the Fed to banks that borrow money

 ____________________ the Money Supply

 ____________________ the Money Supply

The Fed increases the reserve requirement

The Fed decreases the reserve requirement

Discount Rate The interest rate charged by the

Fed to banks that borrow money “Interest” is the cost of

borrowing money

BorrowedInterest

RateSean Owes

$50 10% $55

Imagine that Sean wants to borrow $50 from me to buy a uniform shirt

and khakis.

Definition SituationEffect on the

Money Supply

Open Market Operations:

Buying and selling securities (loans to the gov’t)

The Fed buys up securities

INCREASESthe Money Supply

The Fed sells securities

DECREASESthe Money Supply

Reserve Requirement:The amount of money that the Fed requires banks must hold on to (reserve)

The Fed increases the reserve

requirement 

DECREASESthe Money Supply

The Fed decreases the reserve

requirement 

INCREASESthe Money Supply

Discount Rate:The interest rate charged by the Fed to banks that borrow money

 ____________________ the Money Supply

 ____________________ the Money Supply

The Fed raises the discount rate

The Fed lowers the discount rate

INCREASES

DECREASES

Scenarios Now, take a look at the

following scenarios and determine what the Fed can do to correct the problem.