Monetary Policy and the Federal Reserve Bank

Did you know that April is Financial Literacy Month? Sadly, no matter which month it is, many Americans have very little knowledge and understanding of how monetary policy (as conducted by Chairman Ben Bernanke of the Federal Reserve Bank) works.

The mission of the Fed is to stabilize prices, stimulate economic growth of the American economy, and maintain high employment. Its most recent and successful initiative was the challenge of rescuing private banks, investment banks and insurance companies from fiscal collapse during the financial crises of 2008-09.

The Federal Reserve provided the bailout money to support private banks and insurance companies in what would have been the start of a national and international depression. It also financed much of the ARRA Stimulus that created tax cuts to stimulate demand and reduce business layoffs. The Stimulus also provided funds to states to reduce budget shortfalls and save the jobs of many teachers, police, firefighters, and other public employees.

The Federal Reserve System was created in 1913. It provided for the establishment of 12 federal regional banks to support and regulate the banking industry in the United States. The law was enacted to address the problems of a series of financial panics but especially the currency shortage in 1907 that led to a bank panic and recession.

The twelve Federal Reserve banks were to be overseen by the Federal Reserve Board that was appointed by the president, approved by the Senate, and charged with setting policies for the banks. However, member banks—not the federal government—would own the Federal Reserve Banks. This arrangement, along with the 14-year terms of Federal Reserve Board members, attempted to strike a balance between government and banking interests.

The Federal Reserve Banks were authorized to lend funds to member banks in times of banking crisis and to issue currency. Despite almost unanimous opposition by the nation's bankers, the Federal Reserve Act was passed by Congress on December 23, 1913, and then signed into law by President Woodrow Wilson.

Assign students to write a report of at least 150 words or a presentation of at least seven slides using at least three resources from the Pathfinder listed below.

Students should address the following essential questions for critical thinking (you may add or substitute others):

• What financial problems caused by private banking in the past provided the incentive for the creation of the Federal Reserve Act?
  
  
• What groups were against the passage of the Act, for the Act, and why?
  
  
• What are the objectives of the Federal Reserve Act?
  
  
• What procedures does the Fed use to regulate and protect the financial industry and the economy?

Pathfinder: Click the 1910s icon > The Federal Reserve Act

Your students can use our custom ProQuest models for written and PowerPoint-style reports.

Teachers may be interested in a ProQuest flexible rubrics model for evaluating inquiry-based learning activities.

Educators may also wish to employ the Quizinator Web tool (free, but registration required) for creating a variety of printed resources, including short assessments.