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1.3 As the regulator for the nation’s banking and payments systems, the Fed makes rules for safe business practices by banks and other financial companies. These rules include the minimum cash reserves that a bank must maintain in proportion to the deposits with it. The Federal Reserve lends money to banks for maintaining these reserves or accepts deposits from them when they have excess money. The Fed also ensures that financial securities sold in the market are safe for the customer.
The Federal Reserve has a Board of Governors based in Washington, DC, with a Chairman and 6 other members appointed to staggered 14 year terms. The Fed operates through 12 Reserve Banks that cover all 50 states. Each Reserve Bank has a Board made up of bankers, business people and members of the public and conduct all the activities described in (1) above. Five of the 12 Reserve Bank presidents together with the 7 governors of the Federal Reserve make up the Federal Open Market Committee (FOMC) which has the responsibility for key decisions such as interest rates, monetary policy and the buying and selling of treasury securities. The activities of the FOMC are reviewed by US Congress Committee on Banking and Financial Services.
The Federal Reserve’s monetary policy affects prices, employment and economic growth by influencing the availability and cost of money and credit in the US economy. This cost influences the consumer’s willingness to spend money on goods and services. The three tools used by the FOMC for determining the cost of money are open market operations, the discount rate and the reserve requirements (FRBSF, 2013).
Open market operations are used primarily to control money supply in the banking system. This is done by selling government securities to banks to reduce money supply or buying from them to increase liquidity.
As a result of the disruptions caused by the 2008 global financial crisis, the Fed, invoking the
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It is important to learn from mistakes and try to prevent the same mistakes from happening in the future. Sometimes, however, if one just focuses on the circumstances and not the root of the problem, the past can still repeat itself, just in a different fashion.
This was made possible thanks to economic theorists of old such as Thorstein Veblen and Joseph Schumpeter who have espoused arguments and principles that eventually became antecedents of economic change and innovations. An offshoot of the vision-driven innovations was the establishment of the Federal Reserve System or more informally known today as the Fed.
Impacts of the recent mortgage crisis on the money supply in the United States and the actions of Federal Reserve take in response to the mortgage crisis Impacts of the recent mortgage crisis on the money supply in the United States and the actions of Federal Reserve take in response to the mortgage crisis.
According to Bagus, they both produce the base money to finance their respective governments (n.p.). This role aims to fulfill their objectives in price stability and supplementing the monetary system. The production of this base money occurs mystically to keep the money in the circulation and service government debts.
ccounts, the United States economy was entering into a period of very low economic performance that would translate into, among other things, considerably high unemployment numbers.
At any point in time where more individuals find themselves out of work, that in turn, creates
sometimes it is also incurred for covering a temporary deficit in balance of payment. A brief discussion on the nature and kinds of federal debts is provided which gives the basic understanding of the federal debt.
The sum-total of