...UNITED STATES FEDERAL RESERVE SYSTEM ECO/372 AVOIDING INFLATION • Various monetary policies used to Avert inflation • Contractionary Monetary Policy: • The Fed will sells bonds and therefore decrease the money supply. Thereby raising the fed funds rate to decelerate inflation • Higher interest rates during signs of inflation to contain money growth • Monitor unemployment rates: • high unemployment, inflation will be low *(Colander, 2012) MONETARY POLICY TO CONTROL MONEY SUPPLY • By controlling the reserve rate, the Fed can influence the amount of money in an economy • Expansionary policy • Goal is to decease reserve rate so that the money supply increases. If there is more money in the economy then an increase in investments and output will result. • Contractionary policy • To decrease the money supply, the Federal Reserve System will higher the required reserve rate. Thus, discouraging added spending and investments. *(Colander, 2012) STIMULUS AND MONEY SUPPLY • Money Supply • The money supply is determined by the monetary base and to some extent by the amount of credit banks are willing to extend. • Monetary Base • Vault cash, deposits in the Fed, currency in circulation • Stimulus Program • Fiscal and monetary policy implemented by the government to motivate growth in a slowing economy STIMULUS AND MONEY SUPPLY • A stimulus program injects money into the economy by decreasing taxes, lowering interest rates, and increasing government...
Words: 301 - Pages: 2
...Federal Reserve Presentation Federal Reserve Presentation Introduction: The central Bank of the United States is known as the Federal Reserve. It is characterized by a unique structure which includes 12 Reserve regional banks and a federal government agency who’s Board of Governors is located in Washington D.C. It was created in 1913 after a series of financial panics and in particular that of 1907. Three imperative key objectives were established, they include stable prices, maximum employment and reasonable long term interest rates (Hetzel, 2008). Factors that would influence the Federal Reserve in adjusting the discount rate Factors that would influence the Federal Reserve in adjusting the discount rate include: Money supply: When money supply in the economy increases, the Federal Reserve increases the discount rate to encourage more savings Rate of borrowing: When the rate of borrowing is high the Federal Reserve increases the discount rate to discourage borrowing. Available reserves: When the available reserves decrease, the Federal Reserve decreases the discount rate to encourage more savings. Interest rates: This is where a decrease in interest rate would culminate into a decrease in the discount rate (Brezina, 2012). Does the discount rate affect the decisions of banks in setting their specific interest rates? The discount rate charged on the commercial banks by Fed for reserve lending is unavoidably less than the Federal funds rate....
Words: 963 - Pages: 4
...FEDERAL RESERVE • In 1913 the Federal Reserve Act was passed, establishing reserve requirements for those commercial banks that chose to become members. • There are 12 Districts across America • It earns most of its income in the form of interest on its holding on US. Government securities as well as providing services to financial institutions. • The income earned is transferred to the Treasury • It regulates commercial banks and conducts monetary policy, adjusting the money supply to achieve full employment and price stability ( low inflation) • Has five major components o Federal Reserve District Banks o Member Banks o Board of Governors o Federal Open Market Committee o Advisory Committees Federal Reserve District Banks • Federal Reserve District Cities: o 1. Boston, Massachusetts o 2. New York, New York (Most important District City) o 3. Philadelphia. Pennsylvania o 4. Cleveland, Ohio o 5. Richmond, Virginia o 6. Atlanta, Georgia o 7. Chicago, Illinois o 8.St. Louis, Missouri o 9. Minneapolis, Minnesota o 10. Kansas City, Kansas o 11. Dallas, Texas o 12. San Francisco, California • Commercial banks that become members must purchase stock in the FED • Each District has 9 members o 6 are elected by member banks in which 3 are professional bankers and 3 are engaged in business o The remaining 3 are appointed by the Board of Governors o All nine directors appoint their Fed district bank president • District banks facilitate...
Words: 1233 - Pages: 5
...be written down “by $580 million, blaming “deliberate, multiyear, coordinated accounting misconduct” that was designed to overstate profit at the unit before the deal.” If Caterpillar doesn’t end up doing well in China then it risks losing it’s higher ranking among other construction machinery. Caterpillar still has a few plans to try before giving in easily. Shell Plans to Boost Exploration Budget Friday, February 1st, 2013 Shell and many other oil companies, are planning on expanding the funding for exploration this year. The oil industry is a competitive market and all companies are constantly thriving to become on top. In order to replace declining oil reserves, Shell, and other oil companies are needing to use more of their budget to explore and find more oil wells in order to replace the declining reserves and to increase their net profit. Nasdaq Faces Facebook Fine Wednesday, February 6th, 2013 When Facebok Inc. debuted last year, Nasdaq made several mistakes that could have cost Wall Street nearly $500 million. The Securities and Exchange Commission (SEC) is in talks with Nasdaq in regards to a...
Words: 1251 - Pages: 6
...impact on the economy. There were clues that the economy may have actually slightly contracted instead of expanding. “The United States economy reversed course in the final quarter of 2012 and contracted at a 0.1% rate and was the worst performance since the financial crisis in 2009.” (Mataconis, 2013) . Even with the overall contraction, the economy is not on the brink of a recession or an extended slump. Companies are still spending. The economy we have been living in since 2009 is going to be the new normal. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. The current prime rate is 3.25%, federal discount rate is 0.75%, fed funds rate is 0.25%, and the 11th District cost of funds is 1.071%. Changes made with federal funds rate and the discount rate also dictate changes in the Wall Street Journal prime rate, which is the interest to borrowers. (Bankrate.com, 2013) The current fixed interest rate for credit cards is 13.02% and for variable interest rate for credit cards are at 15.14%. “The unemployment rate falls to 7.8% as the economy creates 114,000 jobs.”...
Words: 559 - Pages: 3
...The Current Financial Environment FIS/260-Financial Markets & Institutions: You Can Bank On It Michael Ricks When I first took a look at this assignment I thought it would be easier than it this. I looked for days on the internet trying to find banks or depositories with credit cards with variable interest rates. What I found was many banks with many credits all with annual percentage rates (APR). So to keep my insanity I just looked at three commercial banks. I looked at Bank of America, US Bank, and Regions bank. I looked at all their credit cards student, business, rewards, and secured. Bank of America credit cards Apr varied anywhere from 12.99% to 20.99%. Here is how they get people, 0% introductory APR for the first 12 billing cycles only for purchases. When that cycle ends your rate will depend on your creditworthiness. US Bank does similar and their rates are from 11.99% to 23.99%. Regions is in the same neighborhood starting at 13.99%, 16.99%, or 19.99% based on credit, but can quickly climb to 24.99% or even 29.99%. Every bank I researched, including credit unions, all based the rate that you would receive on your creditworthiness when you open your account. After that, your APR will vary with the market based on the Prime Rate as set out in the Variable-Rate information section of your agreement. The current annual percentage rate (APR) for a new car can vary from bank to bank, amount to amount, and year to year. It is not something that is...
Words: 1653 - Pages: 7
...September. Both index increases infer growing confidence and positive expectation in current policy. These data will translate to more spending in the aggregate leading to more employment with the probability of increased productivity to supply the demand for goods and services. Consumer Income The US Department of Commerce Bureau of Economic Analysis (BEA) reports personal income increased 0.2 percent for the month of September 2014, and disposable income rising 0.1 percent during the same period. Of note, personal expenditures dropped 0.2 percent equaling this increase. Tis effectively negates any positive contribution to aggregate demand, and in fact, has potential to create an over-supply of goods and services. Interest Rates The Federal Reserve reports no significant changes in key interest rates during the past three months. The...
Words: 420 - Pages: 2
...nt-Financial-Environment Final Project: The Current Financial Environment Research and compare the following services provided by three different commercial banks or other depository institutions: the current interest charged on a variable credit card account, the current annual percentage rate for a new car, and the current interest rate on a year fixed mortgage. List the depository institutions and each separate rate. Research and answer the following questions: What is the current prime rate? What is the current federal funds rate? What is the current Fed discount rate? What is the current GDP? Discuss, in a 1,050- to 1,400-word analysis of your findings, the current financial situation, and explain in detail how the federal funds rate and discount rate are related to the prime rate, and how the prime rate in turn is related to the services provided by the banks you researched. Address the following points in particular: a. The date of the last federal funds rate increase or decrease b. The amount of the increase or decrease c. The rational behind the latest increase or decrease d. The effect of the increase or decrease on the overall economy and upon you as an individual. Do not include any specific personal financial data. Cite your sources. Post your analysis to the Assignment section as an attachment. For more Assignments visit:...
Words: 258 - Pages: 2
...This summary of the most recent report of the Federal Reserve shows steady growth in regards to the strength of the economy, but slightly less aggressive than last year. It is noted that payroll employment has increased by 210,000 on average per month in comparison to 260,000 last year. The unemployment rate dropped by a quarter percent to 5.3 percent in June. It is estimated that labor market resources are not being fully utilized because part time employees looking for full time remains high even though slightly decreasing. Consumer price inflation remains below the FOMC’s goal of 2 percent. The price index of consumer spending increased a quarter percent since last May. This in part is affected by lowered gas prices. Long run inflation estimates have remained stable and real gross domestic product has been little changed since last year in this first quarter. It is expected that inflation will rise to the expected level in the near future. Longer-term interest rates have increased since last year and auto and student loan balances continue to grow higher. This seems similar to the increase in housing loans in the prior decade. Hopefully the amount of default loans will not arise from poor bundling packages. Borrowing by lower rated businesses has increases rapidly as well. It has maintained to implement a low rate for the Federal Funds rate varying from 0-.25 percent. It plans to raise the federal funds rate once employment figures are up to par and the inflation...
Words: 280 - Pages: 2
...risk premium can be an individual stock or the overall stock market provides over a risk-free rate. And the size of the premium will be a standard to compensate with a higher premium in the stock market. Thus, a portfolio manager when the equity risk premium increases in the future， the investors will sell out stock market because the stocks are over priced. So the legislators and pension administrators decide how much to set aside to meet future pension obligations, based upon assessments of equity risk premiums. However the history data of ERP (Equity Risk Premium) from Federal Reserve System shows it keeps low and stable state but increases suddenly since 2006. At the same time the Federal Funds Effective Rate goes down and keeps low state. We know that interest rate is a way to control inflation. Inflation is a factor causes too much money chasing too few goods. “Changes in the federal funds rate affect the behavior of consumers and businesses, but the stock market is also affected,” Said by Jim Mueller (2013), PhD Finance in Washington State University. “As the risk-free rate goes up, the total return required for investing in stocks also increases.” In other words, the "risk-free" rate of return goes up, making these investments more desirable. But is the low interest rate push the equity risk premium rate goes up?...
Words: 3534 - Pages: 15
...FEDERAL RESERVE SYSTEM Cathy Stout Liberty University Government 200 Professor D. Good 12 - 14 - 2015 INTRODUCTION: There are many government workplaces, agencies, law makers including the Federal Reserve that overstep biblical principals. Federal Reserve was put in place in 1913 by President Woodrow Wilson. The Federal Reserve is the main banking system for America. Their duties include: 1) conducting the nation's monetary policy in pursuit of maximum employment, stable prices, and moderate long term interest rates 2) supervising and regulating banking institution 3) maintain the stability of the financial system by containing systematic risk in markets 4) providing finical services to depository institutions, the United States government and the foreign official institutions. (www.usnews.com) Federal Reserve System was to help the people of America but instead it failed. "… government intervention might be necessary it is not always required."(Presentation: Regulation - Do we need it? When?) This paper will show how the Federal Reserve failed to reach its intended purposes and how it has overstepped its biblical purposes. TROUBLE: Due to selfishness, greed, and being power hungry has led to an economic downward spiral of the Federal Reserve System. "For the love of money is the root of all evil..." (1Timothy 6:10) Some of those reasons are: 1) the system is a debt based financial system 2) the system has way to much power 3) the system is an anti free...
Words: 746 - Pages: 3
...ECO 372 Week 4 Federal Reserve System Presentation WHAT ARE THE FACTORS THAT WOULD INFLUENCE THE FEDERAL RESERVE IN ADJUSTING THE DISCOUNT RATE? Weak Economy. Low Employment Levels. High Prices Fluctuation. Low Economy Production Capacity. High Federal Funds Rates. HOW DOES THE DISCOUNT RATE AFFECT THE DECISIONS OF BANKS IN SETTING THEIR SPECIFIC INTEREST RATES? Lower Discount Rates: 1. Banks borrow more reserves 2. Increase in loan offers. 3. Lower interest rates . Increase Discount Rates: 1. Bank reserve decrease. 2. Fewer loans offers. 3. Higher interest rates. How does monetary policy aim to avoid inflation? Contractionary monetary policy: Selling of U.S. Treasury Securities-Open Market Operations. Increase in the Discount Rate. Increase in Reserve Requirements. Control Money Creation. Increase in Government Spending. Decrease in Taxes. FED CONTROLLING MONEY SUPPLY How does monetary policy control the money supply? •With more money, aggregate expenditures are greater. Low interest rates: Investment expenditures. Government purchases. Net exports Consumption expenditures. HOW DOES MONETARY POLICY CONTROL THE MONEY SUPPLY? With less money, aggregate expenditures are lower. •High interest rates: Investment expenditures decrease . Government spending stops. Net exports Consumption expenditures. Decrease. HOW DOES A STIMULUS PROGRAM (THROUGH THE MONEY MULTIPLIER)...
Words: 333 - Pages: 2
...optimistic. Last week we discussed several things. I learned that Trust also means Title Company. For many years I wondered about that. I thought it was just saying that we (as customers and clients) could trust that particular bank. Fritz Augustus Heinze created the Knickerbocker Trust in 1907. Other banks tried to ruin him but they only put fear in people which began bank runs and created the Panic of 1907. That’s when the Feds stepped in and eventually creating the Federal Reserve Bank in 1913. The Federal Reserve Bank then established the Federal Open Market Committee which basically sets the federal fund rates. Federal fund rates are the interest rates that banks charge other banks. Federal discount rates are the interest rates that the Federal Reserve charges banks. The prime rate is the based rate the banks charge other people usually adding 3%. We also discussed how monetary policies are used in controlling the money supply. I spoke about this in my last Team Reflection paper and also in my power point presentation. I understand the need of balance in this world but I also have to admit that it is somewhat disturbing that someone can limit how much money we are able to get by simply raising interest rates. Although this decision is not made by one single individual, that is still a lot of power and I wonder if this power has ever been misused. Last night I was telling my girlfriend about the movie we watched in class called Too Big to Fail. I was telling her that many of...
Words: 393 - Pages: 2
...The Economic Report of the President, The Federal Reserve System, and The United States Census Bureau. Over the course of this paper we will see how each department is important in our economy and what each department does in order to help or hinder the economy. The Bureau of Labor Statistics The Bureau of Labor Statistics (BLS) was established on June 27, 1884 as a division of the Department of the Interior. President Chester Arthur appointed Carroll Wright as the first Commissioner of Labor. Many studies, reports, and statistical ideas developed under Wright’s tenure, “but perhaps his greatest accomplishment was the establishment of the principle that the Bureau would be devoted to ‘the fearless publication of the facts without regard to the influence those facts may have upon any party's position or any partisan's views’” (“History of BLS”, 2013). As the fundamental fact finders for the Federal Government in the area of labor economics and statistics, the BLS collects data from various sources. It processes and analyzes the data before publishing essential statistics for use by the American public; federal, state, and local governments; and businesses. “BLS data must satisfy a number of criteria, including relevance to current social and economic issues, timeliness in reflecting today’s rapidly changing economic conditions, accuracy and consistently high statistical quality, and impartiality in both subject matter and presentation” (“BLS Information”, n.d.). The reports...
Words: 1934 - Pages: 8
...Deficit and Debt Presentation Terrance Fogler, Steven Tudor, Jasmine Metri, Anne Marie Cruse, Deantre Trotter, Courtney Lachance ECO/372 10/22/2015 Dr. Anealia Sasser Skinner Cover (Slide 1) Intro (Slide 2) (Jasmine) Summary (Slide 3) Summary (Cont.) (Slide 4) The Direction of Monetary Policy over the last 3-5 years (Slide 5) (Steve) The Federal Reserve oversees Monetary Policy to maximize employment, stabilize prices, and control interest rates. (Board, 2015) Monetary Policy consists of adapting interest rates and money supply’s to expand or contract the economy based on the United States current economic conditions. (Colander, 2013) Has Money Supply Increased or Decreased The Federal Reserve and their Economists use money supply data as it has shown a close relationship to other key economic indicators such as prices levels, Gross Domestic Product, and even inflation in the long run. (Board, 2015) That being said, there are three standard measurements of the money supply, the first is the monetary base or sums held by banks of the Federal Reserves plus money in circulation. The second is called, "M1" or sum held by the public and their deposits at their local banks. The third is called, "M2" that includes "M1" plus savings deposits, smaller time deposits such as CD's, and their Money Market shares. The attached custom charts from the Federal Reserve shows an increase on money supply. (Board, 2015) Interest Rates have decreased The Federal Reserve continues to maintain...
Words: 816 - Pages: 4
