About This Chapter
The Federal Reserve System & Financial Institutions - Chapter Summary
In this chapter, our expert finance instructors discuss the functions of the Federal Reserve System and other financial institutions in the United States. After outlining the content of the Federal Reserve Act of 1913, you'll be walked through the Federal Reserve's processes, monetary policy and services to the U.S. government. The chapter's bite-sized lessons also review concepts related to the reserve ratio, the fractional reserve system, banking system institutions, bank lending and much more. Because the chapter covers a lot of information, we've included plenty of self-assessment quizzes to help you reinforce key terms and concepts. You can access the chapter's resources at any time that fits your schedule, and upon completion of the chapter, you should be able to:
- Summarize 1913's Federal Reserve Act
- Discuss the major processes of the Federal Reserve System
- Define the Federal Reserve's monetary policy
- Explain how the economy can be affected by fiscal and monetary policy
- Understand how the government is served by the Federal Reserve System
- Describe the effects of the reserve ratio
- Interpret money demand curves
- Name U.S. banking system institutions and compare types of financial institutions
- Evaluate open market operations and the discount rate
- Identify the components of the fractional reserve system
- Determine how money is made
- Use the reserve ratio and describe the multiplier effect
- Tell how your money is protected by the government during financial crises
1. The Federal Reserve Act of 1913: Definition & Overview
The Federal Reserve Act of 1913 was one of the most important Congressional Acts of the 20th Century. In this lesson, you'll learn about the act and the central banking system it created. A short quiz follows.
2. Overview of the Federal Reserve System & its Processes
Just about every week, you hear something in the news about the Federal Reserve, but what is it? What do they do that makes them so important? In short, as this lesson explains, they determine how much money is in the economy.
3. Monetary Policy & The Federal Reserve System
This lesson covers the Federal Reserve System's use of monetary policy to help promote the economy. A short quiz will follow the lesson to check your understanding.
4. How Fiscal Policy and Monetary Policy Affect the Economy
Governments often intervene in their economies in an attempt to maintain economic stability. In this lesson, you'll learn about fiscal and monetary policies, including what effect they can have on a national economy. A short quiz follows.
5. How the Federal Reserve System Serves the Government
In this lesson, we'll explore the functions of the Federal Reserve System. You'll learn the services they provide for the government and banks, and we'll also discuss how the Federal Reserve affects the economy.
6. How the Reserve Ratio Affects the Money Supply
Where does our supply of money come from. Well, it's in the hands of the Federal Reserve. In this lesson, discover how the central bank can dramatically alter the supply of money in the economy by changing the reserve requirements of the banks it oversees.
7. The Money Market: Money Supply and Money Demand Curves
This lesson explores an economic model describing the supply and demand for money in a nation, referred to as the money market. It also describes the central bank's role in controlling the money supply, which impacts interest rates and the greater economy.
8. Institutions of the U.S. Banking System
The United States banking system is diverse and consists of many different types of institutions. In this lesson, you'll learn about commercial banks, savings and loan associations, credit unions, and investment banks.
9. Types of Financial Institutions: Definition, Examples & Roles
In this lesson, we'll explore three types of financial institutions and their roles in financial intermediation. By the end of the lesson, you should also be able to provide an example or two of each type of institution, some of which you may have already used in real life.
10. Reserve Requirement, Open Market Operations and the Discount Rate
This lesson outlines the three main tools used by the central bank to conduct monetary policy, including open market operations, required reserves and the discount rate.
11. Fractional Reserve System: Required and Excess Reserves
This lesson provides an overview of basic banking concepts, illustrating how deposits turn into required reserves and excess reserves. It also covers how a bank accounts for these items on its balance sheet.
12. How Money Is Made: Understanding Bank Lending in the Economy
In this lesson, you'll learn how a single deposit in a local bank increases the money supply and filters through the economy with the help of the fractional reserve banking system.
13. Money and Multiplier Effect: Formula and Reserve Ratio
In this lesson, explore the concept of the multiplier effect and the money multiplier. Then, learn the formula for calculating changes in the money supply.
14. How the Government Protects Your Money During a Financial Crisis
In this lesson, you'll learn about some of the causes of the financial crisis of 2008 that brought us the Great Recession. You'll also learn what steps the federal government can take to help protect your money when the next financial crisis hits.
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Other chapters within the Finance 303: Financial Institutions & Markets course
- Foundations of Finance & Investment
- Interest Rates, Rate Changes, & Risk Structure
- Understanding Financial Markets
- Basics of Financial Investments
- Equity Ownership & Risk Exposure
- Calculating Prices & Yields
- Principles of Financial Statement Analysis
- Financial Risk Management & Mitigation
- Financial Regulation & Ethics