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{"id":2865,"date":"2023-02-19T16:10:57","date_gmt":"2023-02-19T16:10:57","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/apply-it-4-2-the-u-s-banking-system\/"},"modified":"2025-06-25T12:06:50","modified_gmt":"2025-06-25T12:06:50","slug":"apply-it-4-2-the-u-s-banking-system","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/chapter\/apply-it-4-2-the-u-s-banking-system\/","title":{"raw":"Apply It 4.2: The U.S. Banking System","rendered":"Apply It 4.2: The U.S. Banking System"},"content":{"raw":"<section class=\"textbox learningGoals\">\r\n<ul>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Explain the difference between M1 and M2 money supply&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Explain the difference between M1 and M2 money supply<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Explain the role of banks&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14721,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Explain the role of banks<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the functions of the Federal Reserve System&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the functions of the Federal Reserve System<\/span><\/li>\r\n\t<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand what the Federal Reserve System does to carry out monetary policy&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand what the Federal Reserve System does to carry out monetary policy<\/span><\/li>\r\n<\/ul>\r\n<\/section>\r\n<h2>The Fed and Economic Stability<\/h2>\r\n<p>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.<\/p>\r\n<section class=\"textbox recall\" aria-label=\"Recall\">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.<\/section>\r\n<section class=\"textbox watchIt\" aria-label=\"Watch It\"><script src=\"https:\/\/www.youtube.com\/iframe_api \" type=\"text\/javascript\"><\/script>\r\n<p class=\"cc-media-iframe-container\"><iframe id=\"tpm-plugin-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr\" class=\"cc-media-iframe\" src=\"https:\/\/www.youtube.com\/embed\/BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr?enablejsapi=1 \" frameborder=\"0\" data-mce-fragment=\"1\"><\/iframe><\/p>\r\n<p class=\"cc-media-iframe-container\"><script src=\"\/\/plugin.3playmedia.com\/ajax.js?cc=1&amp;cc_minimizable=1&amp;cc_minimize_on_load=0&amp;cc_multi_text_track=0&amp;cc_overlay=1&amp;cc_searchable=0&amp;embed=ajax&amp;mf=13387221&amp;p3sdk_version=1.11.7&amp;p=20361&amp;player_type=youtube&amp;plugin_skin=dark&amp;target=3p-plugin-target-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr&amp;vembed=0&amp;video_id=BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr&amp;video_target=tpm-plugin-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr\" type=\"text\/javascript\"><\/script><\/p>\r\n<p>You can view the\u00a0<a href=\"https:\/\/course-building.s3.us-west-2.amazonaws.com\/Intro+to+Business\/transcripts\/How+Tariffs+Are+Scaring+Americans+Into+Shopping+More_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \u201cHow Tariffs Are Scaring Americans Into Shopping More\u201d here (opens in new window).<\/a><\/p>\r\n<\/section>\r\n<h3>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?<\/h3>\r\n<p>[reveal-answer q=\"531587\"]Click to Show Sample Answer[\/reveal-answer]<br \/>\r\n[hidden-answer a=\"531587\"]In this economic environment of uncertainty caused by tariffs and changing consumer behavior, the Fed faces a dilemma. On one hand, rising inflation concerns and \"doom spending,\" might typically call for higher interest rates to curb inflation and preserve price stability. Higher rates would make borrowing more expensive, potentially cooling excessive spending and stabilizing prices.<\/p>\r\n<p>On the other hand, with concerns about a possible economic downturn, consumer confidence at a 12-year low, and experts cautioning that reduced spending could trigger a recession, raising interest rates in this scenario could excessively restrict economic activity. This could potentially increase unemployment which goes\u00a0 directly against the Fed's goal of maximizing employment.<\/p>\r\n<p>By adopting a \"wait and see\" approach, the Federal Reserve is carefully monitoring both sides of its mandate before acting. This demonstrates how the Fed must carefully weigh conflicting economic indicators to determine which aspect of its dual mandate faces the greater risk before implementing monetary policy decisions. This cautious approach reflects the Fed's responsibility to maintain long-term economic stability rather than reacting to short-term economic fluctuations.[\/hidden-answer]<\/p>","rendered":"<section class=\"textbox learningGoals\">\n<ul>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Explain the difference between M1 and M2 money supply&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Explain the difference between M1 and M2 money supply<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Explain the role of banks&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14721,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Explain the role of banks<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand the functions of the Federal Reserve System&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:14720,&quot;10&quot;:0,&quot;11&quot;:4,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand the functions of the Federal Reserve System<\/span><\/li>\n<li><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Understand what the Federal Reserve System does to carry out monetary policy&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:15233,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:0,&quot;11&quot;:4,&quot;12&quot;:0,&quot;14&quot;:{&quot;1&quot;:2,&quot;2&quot;:0},&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:10}\">Understand what the Federal Reserve System does to carry out monetary policy<\/span><\/li>\n<\/ul>\n<\/section>\n<h2>The Fed and Economic Stability<\/h2>\n<p>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&#8217;t need to watch it again.<\/p>\n<section class=\"textbox recall\" aria-label=\"Recall\">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&#8217;s hesitation to adjust interest rates due to unclear economic signals.<\/section>\n<section class=\"textbox watchIt\" aria-label=\"Watch It\"><script src=\"https:\/\/www.youtube.com\/iframe_api\" type=\"text\/javascript\"><\/script><\/p>\n<p class=\"cc-media-iframe-container\"><iframe id=\"tpm-plugin-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr\" class=\"cc-media-iframe\" src=\"https:\/\/www.youtube.com\/embed\/BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr?enablejsapi=1\" frameborder=\"0\" data-mce-fragment=\"1\"><\/iframe><\/p>\n<p class=\"cc-media-iframe-container\"><script src=\"\/\/plugin.3playmedia.com\/ajax.js?cc=1&amp;cc_minimizable=1&amp;cc_minimize_on_load=0&amp;cc_multi_text_track=0&amp;cc_overlay=1&amp;cc_searchable=0&amp;embed=ajax&amp;mf=13387221&amp;p3sdk_version=1.11.7&amp;p=20361&amp;player_type=youtube&amp;plugin_skin=dark&amp;target=3p-plugin-target-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr&amp;vembed=0&amp;video_id=BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr&amp;video_target=tpm-plugin-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr\" type=\"text\/javascript\"><\/script><\/p>\n<p>You can view the\u00a0<a href=\"https:\/\/course-building.s3.us-west-2.amazonaws.com\/Intro+to+Business\/transcripts\/How+Tariffs+Are+Scaring+Americans+Into+Shopping+More_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \u201cHow Tariffs Are Scaring Americans Into Shopping More\u201d here (opens in new window).<\/a><\/p>\n<\/section>\n<h3>The video mentions the Federal Reserve decided to &#8220;wait and see&#8221; and leave interest rates at their current level. How does this reflect the Fed&#8217;s dual mission of maintaining price stability and maximum employment?<\/h3>\n<p><div class=\"qa-wrapper\" style=\"display: block\"><button class=\"show-answer show-answer-button collapsed\" data-target=\"q531587\">Click to Show Sample Answer<\/button><\/p>\n<div id=\"q531587\" class=\"hidden-answer\" style=\"display: none\">In this economic environment of uncertainty caused by tariffs and changing consumer behavior, the Fed faces a dilemma. On one hand, rising inflation concerns and &#8220;doom spending,&#8221; might typically call for higher interest rates to curb inflation and preserve price stability. Higher rates would make borrowing more expensive, potentially cooling excessive spending and stabilizing prices.<\/p>\n<p>On the other hand, with concerns about a possible economic downturn, consumer confidence at a 12-year low, and experts cautioning that reduced spending could trigger a recession, raising interest rates in this scenario could excessively restrict economic activity. This could potentially increase unemployment which goes\u00a0 directly against the Fed&#8217;s goal of maximizing employment.<\/p>\n<p>By adopting a &#8220;wait and see&#8221; approach, the Federal Reserve is carefully monitoring both sides of its mandate before acting. This demonstrates how the Fed must carefully weigh conflicting economic indicators to determine which aspect of its dual mandate faces the greater risk before implementing monetary policy decisions. This cautious approach reflects the Fed&#8217;s responsibility to maintain long-term economic stability rather than reacting to short-term economic fluctuations.<\/p><\/div>\n<\/div>\n","protected":false},"author":21,"menu_order":12,"template":"","meta":{"_candela_citation":"[{\"type\":\"copyrighted_video\",\"description\":\"How Tariffs Are Scaring Americans Into Shopping More\",\"author\":\"CNBC\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/BaSj_6mrDsA\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":2853,"module-header":"apply_it","content_attributions":[{"type":"copyrighted_video","description":"How Tariffs Are Scaring Americans Into Shopping More","author":"CNBC","organization":"","url":"https:\/\/youtu.be\/BaSj_6mrDsA","project":"","license":"arr","license_terms":"Standard YouTube License"}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"<script type='text\/javascript' src='https:\/\/www.youtube.com\/iframe_api'><\/script><script type='text\/javascript' src='\/\/plugin.3playmedia.com\/ajax.js?cc=1&cc_minimizable=1&cc_minimize_on_load=0&cc_multi_text_track=0&cc_overlay=1&cc_searchable=0&embed=ajax&mf=13387221&p3sdk_version=1.11.7&p=20361&player_type=youtube&plugin_skin=dark&target=&vembed=0&video_id=BaSj_6mrDsA&video_target=tpm-plugin-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr'><\/script>\n","media_targets":["tpm-plugin-edhhefgc-BaSj_6mrDsA?si=QdcyyzSGe3ojd_zr"]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2865"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/users\/21"}],"version-history":[{"count":20,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2865\/revisions"}],"predecessor-version":[{"id":9800,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2865\/revisions\/9800"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/parts\/2853"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/2865\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/media?parent=2865"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=2865"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/contributor?post=2865"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/introductiontobusiness\/wp-json\/wp\/v2\/license?post=2865"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}