Requires banks and System that banks other depository operate under Fractional institutions to keep a reserve system fraction of their deposits Excess reserves can be in the form of legal loaned out to reserves consumers Board of 7 members appointed by Supervises Federal Governors President Reserve System Federal Reserve Serve the district’s 12 district banks District Banks banks Easy Fed allows supply to Stimulates the policy grow and interest rates to economy fall Tight money Drives interest rates up Fed restricts the growth policy of money supply Limits inflation Moral People make decisions persuasion Influences economy based on their (suasion) (not rationally) feelings/reports in media
Fractional reserve system Requires banks and other depository institutions to keep a fraction of their deposits in the form of legal reserves System that banks operate under Excess reserves can be loaned out to consumers Board of Governors 7 members appointed by President Supervises Federal Reserve System Federal Reserve District Banks 12 district banks Serve the district’s banks Easy policy Fed allows supply to grow and interest rates to fall Stimulates the economy Tight money policy Fed restricts the growth of money supply Drives interest rates up Limits inflation Moral persuasion (suasion) People make decisions based on their feelings/reports in media Influences economy (not rationally)