Originally, the Federal Reserve System was employed to exercise control on member banks’ reserve requirements in order to have a viable degree of liquidity to meet demands for unexpected and large cash withdrawals (Horvitz et al 1993). Such bank reserves are not legally…
Download file to see previous pages...
eserve requirements affects current interest rates particularly the short term rates since the reserve operations comprise of the sale and purchase of government securities that are short term (Keleher 1997), thus controlling the prevailing interest rates. Long term rates are likewise affected and can only be sustained through the endorsement of price stability among susceptible sectors of the economy that involves key interest rates (Keleher 1997). Economic stability requires that prices within the broad range of industries must be stable. It follows that an internal balances and external balance must be achieved with regards to the balance-of-payments (BOP) position. If a fixed-exchange rate system is followed, an expansionary monetary policy worsens the BOP position, while a contractionary monetary policy improves the BOP position (Carbaugh 1998). On the other hand, an expansionary fiscal policy directs to a decline of the trade account and a step-up in the capital account. The overall BOP is affected and reliant on the comparative strength of these two conflicting forces in the economy (Carbaugh 1998).
following: 1) the credit standing of the borrower, 2) the differences in maturity of debts or securities and 3) other institutional reasons (Horvitz et al 1993). The economic role of lending is to transfer existent funds from the lender to the borrower (Horvitz et al 1993). Thus, aside from having a good credit standing in order to secure a loan, individual lenders and institutions impose interest rates basically on the yield or output they will eventually gain should the borrower either make a loan for a short or long period of time; which is normally in months or years respectively (Horvitz et al 1993). As such, yields on long term debts will usually fluctuate more in price than short-term debts. Although the rates for short term loans will likewise fluctuate, it will not move as much as those made for longer durations (Horvitz et al 1993).
...Download file to see next pagesRead More
1): 1. Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates. 2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.
(Functions of Money) If money had not been there all transactions would have to be done through barter system. That is a tedious process on day to day operations. Money also functions as a unit of account measuring the value of goods or services under exchange.
Founded by Congress, the Federal Reserve was created to provide the nation with a safer, more flexible, and more stable monetary system. The structure of the Federal Reserve itself was designed to give a broad outlook on the economy and economic matters, and bring some stability to a currency.
The FED also keeps business running in the nation through supply of currency, coins, and services payments such as check clearing and electronic funds transfer (Solow & Taylor, 2008).The paper will look at the U.S Federal Reserves monetary policy in detail addressing various issues.
The structure, roles and the responsibilities of the Federal Reserve has undergone rapid changes over the years which have been mainly stimulated by the events like the Great Depression, Global Financial Crisis, etc. The structure of the Federal Reserve System is composed of a governing board, the open market committee, regional Federal Reserve banks, privately owned banks in US and the advisory councils.
They jointly implement the monetary policy which is set by the Federal System. Every Federal Reserve banks governs the regulation of commercial banks in their district. Alexander Hamilton, the first secretary of treasury of United States, proposed the idea of instituting a National Bank in order to develop the country in terms of all the financial aspects.
The lack of credit, the lifeline of business, has threatened the ability of firms to do business and expansion is left as an impossibility. Consumer loans for automobiles, appliances, and other goods are difficult to obtain, and when it is available it is expensive.
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 Reserve System includes the Federal Open Market Committee, the Board of Governors, and the Federal Reserve Bank Presidents.
This essay will explore the history of the formation of Federal Reserve Bank i.e. FED and will look into some of the methods it use to contract or expand the economy using money supply and interest rates.
The article comprehensively discusses the main policies that had been taken by the Federal government during the sluggish phase of 2008-2013 to restore equilibrium in the recessionary economy. The conventional monetary policy of the Federal Reserve was mainly based on targeting the federal funds rate.
8 Pages(2000 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Monetary Policy: money, credit, the Federal Reserve, interest for FREE!