Apply It 4.2: The U.S. Banking System

  • Explain the difference between M1 and M2 money supply
  • Explain the role of banks
  • Understand the functions of the Federal Reserve System
  • Understand what the Federal Reserve System does to carry out monetary policy

The Fed and Economic Stability

This Apply It continues using the doom spending case study video from earlier in this module. The video is included below in case you want to refresh your memory about specific details, but if you have already watched it, you don’t need to watch it again.

Remember that the video discussed how tariff uncertainties have affected consumer confidence, with many Americans spending more to avoid future price increases. The video also mentioned the Federal Reserve’s hesitation to adjust interest rates due to unclear economic signals.

You can view the transcript for “How Tariffs Are Scaring Americans Into Shopping More” here (opens in new window).

The video mentions the Federal Reserve decided to “wait and see” and leave interest rates at their current level. How does this reflect the Fed’s dual mission of maintaining price stability and maximum employment?