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The Federal Reserve Controls the American Economy - Term Paper Example

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Running head: The Federal Reserve The Federal Reserve Controls the American Economy Insert Name Insert Grade Course Insert 09 May 2012 Introduction The Federal Reserve controls the American economy because of the prominent role it plays in managing the flow and circulation of currency and the interest fees…
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The Federal Reserve Controls the American Economy
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The Federal Reserve Controls the American Economy

Download file to see previous pages... It is obvious that the economy is all about managing finances, and since the Federal Reserve has oversight authority over the country’s financial administration it controls the entire economy. As a central bank, the Federal Reserve sets the rates for other commercial banks thus influencing the interest rates. Similarly, the Federal Reserve determines the circulation of money thus influencing inflation and flow of money. Through these two dynamic roles of the Federal Reserve, it is evident that the US economy lies directly in the hands of the Federal Reserve. Several developments in the US economy, like the great depression, have seen the augmentation of the evolution and transformation of the roles of the Federal Reserve. The congress developed three crucial goals regarding monetary policy in the Federal Act namely; utmost employment, constant prices, and reasonable long-term interest rates. To be relevant to the growing economic realities the roles of Federal Reserve have grown to include other areas like performing the nation's monetary policy, managing and regulating banking entities, maintaining the steadiness of the financial arrangement and offering financial services to reservoir organizations, the U.S. government, and abroad executive institutions. The Beige Book is a manual usually published by the Federal Reserve that contains research on various aspects of the US economy. Structure of the Federal Reserve System and Its Core Functions The federal system structure constitutes of governors selected by the president, Federal Open Market Committee, twelve local Federal Reserve Banks situated in main cities all over the nation, plentiful surreptitiously owned U.S. affiliate banks and assorted advisory committees (Willis 48). The FOMC is the board in charge of establishing monetary policy, which comprises all seven affiliates of the Board of Governors along with the twelve local bank heads. Nonetheless, simply five bank presidents take part in an election at whichever time. The Federal Reserve System intention is to serve the purposes of both the broad public as well as clandestine bankers. The outcome is a structure that is painstakingly unique with central banks. Federal Reserve is further remarkable in that Department of the Treasury, an entity out of the central bank, makes the currency used. The Federal Reserve is independent, and its decision needs not to be approved by the executive or government. Hence, it base its mandate on laws ratified under which it operates with autonomy under congress oversight. However, the executive select the leaders of the Federal Reserve while the congress does the confirmation. The government has some control over the Federal Reserve because it sets the remuneration of the highest leaders of the system. All profits derived by the Federal Reserve System go to the government. Federal Reserve System and the US Economy The Federal Reserve has oversight authority on the American economy, therefore, exercising overall control on the country’s economy (Meltzer 32-35). The functions of the Federal Reserve regard overall economic management. The Fed controls inflation in a manner that keeps recession at bay. Other significant roles of the Fed in US economy include supervision of the country’s banking system to cushion customers, maintaining steadiness of monetary markets and confine probable crises, and functioning as a ...Download file to see next pagesRead More
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