The Federal Reserve System and Central Banks

Grade: 11 Lesson # 8

How does the Federal Reserve System function as the central banking system of the United States of America?

SS.912.FL.3.5 Explain ways that government agencies supervise and regulate financial institutions to help protect the safety, soundness, and legal compliance of the nation’s banking and financial system.

Correlated Literacy Standard: LAFS.1112.RI.3.7 Integrate and evaluate multiple sources of information presented in different media or formats as well as in words in order to address a question or solve a problem.

The Federal Reserve System and Central Banks

Lesson Number 8 for Grade 11:

Correlated Florida Standards (See Full Text on Cover Page)

· LAFS.1112.RI.3.7

Essential Question

· How does the Federal Reserve System administer and regulate the United States’ financial system?

Learning Goals/Objectives

· Identify the goals of the Federal Reserve.

· Describe the structure of the Federal Reserve.

· Identify the functions of the Federal Reserve.

· Identify the tools of the Federal Reserve and their affect on the money supply.

Overview

· Students will learn about the structure and function of the Federal Reserve System, the central banking system of the United States. Students will watch information videos and discuss the effectiveness of the Federal Reserve on the current economy.

Materials

· “Open and Operating” video from the Federal Reserve: http://www.frbsf.org/education/teacher-resources/open-operating-federal-reserve-response-911/video

· Forbes List of Most Powerful People in the World http://www.forbes.com/powerful-people/list/#tab:overall

· Federal Reserve Handout Map http://www.federalreserve.gov/boarddocs/rptcongress/annual07/pdf/maps.pdf

· Structure of the Federal Reserve http://www.frbsf.org/education/teacher-resources/what-is-the-fed/structure

· “Monetary Policy” video from Investopedia.com http://www.investopedia.com/video/play/monetary-policy/

· Consumer Price Index (CPI)/Inflation Rates from the Bureau of Labor Statistics http://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths

· Unemployment Rates from the Bureau of Labor Statistics http://data.bls.gov/timeseries/LNS14000000

Time

· One class period of 50 minutes.

Activity Sequence

INTRODUCTION/HOOK

· Ask students which United States citizens are considered the most powerful people in the world. Answers may include the President of the United States, CEOs of major corporations, and major television/film personalities. (The Chairperson of the Federal Reserve System is included on an annual list provided by Forbes [see Forbes.com link; as of 2015 the list includes President Barack Obama, Bill Gates, Janet Yellen (the current Chair of the Federal Reserve), and Larry Page of Google.])[5 minutes]

ACTIVITY

1. Ask students why they think the Chairperson of the Federal Reserve System is included on the list of the most powerful people in the world. [5 minutes]

2. Have students watch “Open and Operating” and to be sure to list the functions of the Federal Reserve and the tools for monetary policy. [17 minutes]

3. Discuss the two mandates of the Federal Reserve, 1. Achieve maximum employment and 2. Achieve low and stable inflation. [3 minutes]

4. Pass out the Federal Reserve Handout Map to each student and discuss the structure of the Federal Reserve, including its Board of Governors and Federal Open Market Committee (FOMC). [see Structure of the Federal Reserve link for information and to display for students] [5 minutes]

5. Have students watch “Monetary Policy” from Investopedia [see link] and to be sure to list the tools of the Federal Reserve on monetary policy. [3 minutes]

6.Discuss the three tools of the Federal Reserve to affect monetary policy in achieving its two aforementioned mandates. [7 minutes]

o Open Market Operations, or buying bonds (securities) and selling bonds (securities)

§ Buying bonds increases the money supply, increases bank reserves, and decreases the federal funds rate and leads to increased consumer borrowing, consumer spending and business investment leading to higher employment or help end a recession.

§ Selling bonds decreases the money supply, decreases bank reserves, and increases the federal funds rate and leads to decreased consumer borrowing, consumer spending, and business investment in order to decrease high inflation.

o Discount Rate, the interest rate charged to commercial banks for borrowing from the Federal Reserve

§ Decreasing the discount rate increases the money supply, increases bank reserves, and decreases the federal funds rate and leads to increased consumer borrowing, consumer spending and business investment leading to higher employment or help end a recession.

§ Increasing the discount rate decreases the money supply, decreases bank reserves, and increases the federal funds rate and leads to decreased consumer borrowing, consumer spending, and business investment in order to decrease high inflation.

o 3. Reserve Requirement, the established rate of money reserves a bank is required to hold

§ Decreasing the reserve requirement increases the money supply, increases bank reserves, and decreases the federal funds rate and leads to increased consumer borrowing, consumer spending and business investment leading to higher employment or help end a recession.

§ Increasing the reserve requirement decreases the money supply, decreases bank reserves, and increases the federal funds rate and leads to decreased consumer borrowing, consumer spending, and business investment in order to decrease high inflation.

CLOSURE

· Call on students to ask review questions on the Federal Reserve’s dual mandate, monetary policy tools, and how the tools are used. [5 minutes]

OPTIONAL EXTENSION SUGGESTION/HOME LEARNING

· Have students research the current unemployment rate and inflation rate and recent trends from the Bureau of Labor Statistics [see link] and ask students if the Federal Reserve is achieving its mandates of low unemployment and low and stable inflation to be discussed next class.

Sources/Bibliographic Information that contributed to this lesson:

Federal Reserve Seal image: http://www.encyclopedia.com/topic/Federal_Reserve_System.aspx