Federal Reserve system - Essay Example

Comments (0) Cite this document
Summary
Macro 11 Name: Course: College: Tutor: Date: Question one The Federal Reserve System (FED) is responsible for the implementation of the monetary policy by managing the balances that financial institutions have in Federal Reserve banks. Besides this control of money, FED supplies currency and supervises the banking system…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER97.1% of users find it useful
Federal Reserve system
Read TextPreview

Extract of sample "Federal Reserve system"

Download file to see previous pages Changing the reserve requirements. The banking system is required to keep a certain amount of the deposits in reserve, while the rest is given out in terms of loans. This amount which is defined in terms of reserve ratio determines the amount of money the financial institutions can create out of the deposits reserved. The FED can either increase or decrease the money supply by altering the reserve ration required from the banking system. When the reserve ratio is lowered the banking system will be required to decrease the deposits in reserve, thus increasing the lending capacity. This in turn will increase the money supply. Alternatively, if FED raises the reserve ratio the banks will be forced to increase their reserve deposits and thus lower the lending capacity. This will eventually decrease the money supply. Changing the reserve requirements is potentially the most powerful tool because a small change in the reserve can causes big changes in the money supply within a very short time. Open market operations. This is the most commonly used tool in the daily operations, and is concerned with the purchases and sales of the government in the open market. FED controls the money supply by either buying or selling the government bonds. ...
Banks create money by borrowing from the FED reserves or taking account receivables to FED. FED in turn imposes a discount on the loans made. Money supply can be increased by decreasing the discount rates which encourage banks to borrow more from the Federal reserves. Conversely, a lower discount rate will discourage banks from borrowing and thus lower money supply. Question two Easy money policy A 10 Real rate of Interest (%) 8 6 125 150 175 Amount of money demanded and supplied ($ billions) B Real rate of 10 Interest and Expected 8 Of profit (%) 6 investment demand 15 20 25 Amount of investment ($ billion) C P 3 Price level AD3 P 2 AD2 P 1 AD1 0 Q1 Q2 Q3 Real GDP ($ billion) Tight money policy A 10 Real rate of Interest (%) 8 6 125 150 175 Amount of money demanded and supplied ($ billions) B Real rate of 10 Interest and Expected 8 Of profit (%) 6 investment demand 15 20 25 Amount of investment ($ billion) C P 1 Price level AD1 P 2 AD2 P 3 AD3 0 Q3 Q2 Q1 Real GDP ($ billion) A = the money market B = Investment demand C= Equilibrium real GDP and the price level Easy money policy can be achieved by making money less expensive to borrow. This means that FED can buy government bonds, decrease the federal funds rate, or decrease the reserve requirements. On the other hand, tight money policy is achieved by making money more expensive to borrow. FED can sell government bonds, increase the federal funds rate, or increase the reserve requirements. Question three The use of monetary rule by FED is based on Taylor’s assumptions of macroeconomics. In this model, price and inflation are steered by three factors; Employment Index, Consumer Price Index, and producer prices (Twomey, ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Federal Reserve system Essay Example | Topics and Well Written Essays - 1250 words”, n.d.)
Federal Reserve system Essay Example | Topics and Well Written Essays - 1250 words. Retrieved from https://studentshare.org/macro-microeconomics/1438116-macro11
(Federal Reserve System Essay Example | Topics and Well Written Essays - 1250 Words)
Federal Reserve System Essay Example | Topics and Well Written Essays - 1250 Words. https://studentshare.org/macro-microeconomics/1438116-macro11.
“Federal Reserve System Essay Example | Topics and Well Written Essays - 1250 Words”, n.d. https://studentshare.org/macro-microeconomics/1438116-macro11.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Federal Reserve system

The Federal Reserve System

...?Introduction The current economic situation is considered as one of the worst economic period in the history of United s of America. Starting in the end of 2007, economic downturn has resulted into the decline in GDP level, an increase in the unemployment as well as reduction in the consumer credit due to low consumer confidence and spending. The persistent decline in the economic activity therefore attracted the attention of the Government as well as the Federal Reserve System. Government took both the fiscal as well as monetary measures in order to stimulate the economy. These events however, led Federal Reserve System or FED to intervene into the economy in order to take some measures to correct the economic situation. FED... into the...
3 Pages(750 words)Term Paper

The Federal Reserve System

...?Introduction The role of a central bank in any economy is to manage the monetary policy of the country while ensuring that it manages to achieve broader macroeconomic objectives. One of the key objectives of any central bank is therefore to ensure that inflation within economy remains under control. The flow of money within the economy therefore should be managed in such a manner that it supports the achievement of low inflation, economic stability as well as the low unemployment level within the economy. The Federal Reserve System or Fed is the central bank of US and is operating at both the federal as well as State level. Created in 1913 through Federal Reserve Act, it has served US as one of the leading economic policy making... ...
8 Pages(2000 words)Term Paper

The federal reserve system

...The Federal Reserve System The Federal Reserve, or the central bank, is among the most powerful economic institution in the United States of America. The Federal Reserve was given the power over regulation of the value of money by congress. In simple terms, the Federal Reserve came into being by enactment of the Congress. Consequently, the Congress has the obligation of overseeing the monetary policy and the Federal Reserve. This paper analyzes the importance of the Federal Reserve and strategy in stabilizing the economy...
3 Pages(750 words)Essay

Money,banking and the federal reserve system

...Money, Banking and the Federal Reserve System Every world economy requires money to transact its operations. Money is a liquid asset applicable making transactions in acquisition of goods and services. There are several monetary forms present in the world today. The United States of America uses the monetary unit of a Dollar. The United States Treasury prints money bills for distribution to the banks in form of bank reserves. The banking system provides the platform for reserving money for distribution to the public. In order to ensure a balance of the bank reserves and to control the monetary base, the...
7 Pages(1750 words)Essay

The Federal Reserve System

...The Federal Reserve System To provide the United s with a stable monetary and financial system, Congress established the Federal Reserve Bank System (Fed). The Federal Reserve Act of 1913 signed by Woodrow Wilson designated the Fed, the central bank, with the responsibility for establishing monetary policy. Monetary policy is the actions taken by the central bank to influence the availability and cost of money and credit to assist in promoting national economic goals. The Fed's monetary policy decisions affect the flow of money and credit in the economy. The Federal...
3 Pages(750 words)Essay

How the Federal Reserve System Functions

...The question of how the Federal Reserve System functions is one intimately related to structure: how the entire system fits into the wider context ofthe Federal government. Unfortunately, the history of the Federal Reserve may be better summarized not as a functional history, but as a dysfunctional history. There is a certain contrast between how the system ought to work (or is expected to work) and how it actually works (with its actual effects on banking systems) in reality. Because the Federal Reserve (which, from here on, shall be referred to as “the Fed”) is so deeply interconnected with the entire political system, the inevitably byproducts of central banks are business cycles caused by politically-oriented monetary policies... ....
5 Pages(1250 words)Term Paper

Money and the federal reserve system

...Money and the Federal Reserve System The Federal Reserve had always played an immense role in controlling the financially crucial situationsever originated in the USA. Its instruments come in the form of feasible monetary policies that take care not only of any present crisis but also those of the future. A good example is its mode of activities in the face of the recent global meltdown that not only helped in controlling the crisis but included measures to effectively control any aftermath. The present paper deals with the institution’s monetary policies which from time to time had acted like a shield against an economic crisis, for the country. Table of Contents Abstract 2 The Federal Reserve had always played an immense role... of the...
4 Pages(1000 words)Term Paper

U.S. Federal Reserve System

...US Federal Reserve System “The central banking system of United s was created in 1913 byUnited States congress in order to provide safer modes of monitoring and a flexible banking system” (Philadelphia, pp. 2). The Federal Reserve System is a government institution developed to monitor country’s economic policies including employment, supply of money and interest rate. Federal Reserve System operates like an independent entity to control public and private aspects and comprised of seven members elected by the senate and president on 14 years agreement...
2 Pages(500 words)Research Paper

Federal Reserve System, Interest Rates and Money Supply (SLP)

...Impact of Interest Rate Changes Impact of Interest Rate Changes inserts his/her Impact of Interest Rate Changes The paper discusses how the recent changes in interest rates made by the Federal Reserve have affected any consumer buying decisions such as buying a new home, refinancing a home, financing a new car, saving more money in bank, etc. Income is a hybrid of savings and expenditures where savings and expenditures are in inverse relation to each other. Changes in major economic variables have a significant impact on the consumer spending. For example, higher interest rates increase the savings and affects consumer spending. According to Engels Laws, with the rise in income, the percentage of income spent on food decreases... but the...
2 Pages(500 words)Essay

Criticisms of the Federal Reserve System

...Who "OWNS" the Fed? Who are the shareholders of the Federal Reserve? The Federal Reserve - Fed is not owned by theAmerican government as most people think. It is owned by twelve central banks some of which are foreign. These are Warburg Bank of Hamburg, Rothschild Bank of London, Lazard Brothers of Paris, Lehman Brothers of New York, Chase Manhattan Bank of New York, Kuhn Loeb Bank of New York, Warburg Bank of Amsterdam, Israel Moses Seif Banks of Italy, Sachs of New York, Goldman, Morgan Guaranty Trust, and the Bank of New York. The major shareholders of Fed are National City Bank, National Bank of Commerce, First National Bank of New York, Hannover National Bank, and...
1 Pages(250 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Federal Reserve system for FREE!

Contact Us