...U.S Federal Reserve Monetary Policy Sherwin Harris ECO/212 May 30, 2011 Frank Vigil Introduction The Monetary Policy relates to the activities that the Federal Reserve take on to effect the sum of money and credit in the U.S. economy. Changes to the amount of money and credit have emotional impacts on the interests rates and the performance of the U.S. economy, if the cost of credit is reduced, more people and business will borrow money and the economy will accelerate. Money The purpose and function of money can be considered a medium of exchange. Is a standard representation of value, and can be used as a payment for products, service of goods or as a measure of wealth. The assessment of money are regulated by government agencies, gold, and most market conditions, The central bank manages the nation's monetary system by increasing or decreasing the monetary supply which in good common spirit can enhance increase or downcast the affect of interest rates, and control the rate in which goods and services increase in appraisal in relation to one another. Money is not just resources of exchange; it is also a store of value for an individual, family or a society. In its modest form, money could be, and was at times, coin or pieces of paper that represented real things. Gold has been used as the backing for many currencies in most countries, the of meaning money that has no commodities or other valuables directly backing it, is often said...
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...Is the monetary policy conducted by the American Federal Reserve really efficient? Does monetary policy conducted by the American Federal Reserve is really efficient? Introduction Miller et. Al.2013: Ch. 6: the chapter of this book is a set of articles that all point fingers at monetary policy’s weaknesses and interrogate Fed’s actions’ efficiency. All of them have pretty much a Keynesian point of view about the Fed’s policies failure, so they do not call into questions the existence of the Fed itself and its monetary policy but they rather globally accuse a lack of regulation and claim for an even more important intervention from the government. But over the last decades, we have experienced several Fed’s interventions and many expansionary monetary policies in order to try to counter the negative effects of the crises and then, to get the Economy back on track. However, the recovery is quite slow, the unemployment rate still quite high and a new crisis regularly burst. Thus, it seems legitimate to wonder about the effectiveness of the Fed policy. Does it have a real impact? And more important, does it have a real positive impact? First, we’ll define the monetary policy, its tools and its goals. Then, we’ll study the Keynesian theory of money and the important role it can play in the Economy and in its recovery - or could, without “interferences” strong Liberal thoughts might cause. Finally, we’ll consider arguments that claim monetary policy has become inefficient...
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...The Impact of the Federal Reserve Monetary Policies on Businesses Paul C. Batt Liberty University Introduction Important tools that governments use are monetary policies. These policies help regulate economic activity. Marc Labonte (2012) states that the Federal Reserve defines monetary policy “as actions taken to influence the availability and cost of money and credit.” These actions help control the money flow through the policies in which is parallel to the political and economic preferences. Monetary policy can influence the economy regionally and globally. These actions affect prices, employment, growth, and other areas. Through these changes, monetary policy influences consumers and businesses willingness to spend. Goals of Monetary Policy Monetary policy goals are consistent with the policy of the Federal Reserve Act. The Federal Reserve through it’s Board of Governors and Federal Open Market Committee seek certain goals. These goals include stable prices, long-term interest rates, and maximum employment. Stable prices help sustain maximum growth and employment. Stable pricing in the long-term helps control goods, services, and materials from outside influences of inflation. Stable pricing encourages savings and businesses are encouraged to invest more. Stable pricing in the long-run can compromise stability on the short-run. Short-run effects can lessen price pressures, in which this can move to easing in policy. With restrain inflationary...
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...Chapter 29 The Monetary System TRUE/FALSE 1. In an economy that relies on barter, trade requires a double-coincidence of wants. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Barter MSC: Definitional 2. Joe wants to trade eggs for sausage. Lashonda wants to trade sausage for eggs. Joe and Lashonda have a double-coincidence of wants. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Barter MSC: Definitional 3. The use of money allows trade to be roundabout. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money | Trade MSC: Definitional 4. Roundabout trade is beneficial for an economy. ANS: T DIF: 1 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money | Trade MSC: Definitional 5. Money allows people to specialize in what they do best, thereby raising everyone’s standard of living. ANS: T DIF: 2 REF: 29-0 NAT: Analytic LOC: The role of money TOP: Money MSC: Interpretive 6. When money functions as a unit of account, then it cannot be commodity money. ANS: F DIF: 2 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money MSC: Interpretive 7. Demand deposits are balances in bank accounts that depositors can access by writing a check. ANS: T DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Demand deposits MSC: Definitional 8. According to economists, a collection of valuable jewels is not money. ANS: T DIF: 2 REF: 29-1 NAT: Analytic LOC: The Study of economics...
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...The Federal Reserve Jermaine C. Taylor ECO320 Money & Banking March 2, 2014 Prof. Diana Bonina, Ph.D. Strayer University The Federal Reserve established on December 23, 1913 when President Woodrow Wilson signed the Federal Reserve Act into law. Although started in 1913, actual operations of the Reserve began in 1914. In order to provide the country with a safer financial system, Congress created The Federal Reserve System as the central bank of the United States. Today, the Federal Reserve’s responsibility falls into four general areas: conducting the nation’s monetary policy; supervising, regulating and other soundness of the country’s financial system; maintaining the stability of the financial system and providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions. The Federal Reserve can use the following tools to influence the money supply: Open Market Operations, The Required-Reserve Ratio and Discount Rate. The Federal Reserve uses Open Market Operations as its primary tool to influence the supply of bank reserves. This tool consists of Federal Reserve purchases and sales of financial instruments, usually securities issued by the U.S. Treasury, Federal agencies and government-sponsored enterprises. Using Open Market Operations, Federal Reserve can affect the money supply by buying or selling the U.S. government securities. When the Federal Reserve purchases a government security from the public...
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...Monetary Policy Monetary policy is to endorse price constancy, full employment, and economic growth. The United States has a devoted but detests banking system. The most rundown association is the nation’s central bank, the Federal Reserve. Purpose and Function of Money The purpose of function of money to devise an artificial value as medium used to evaluate a service or goods. Money performs as a stock up of value when someone obtains it either today or tomorrow, that person is still able to use it later. Money operates as a set of values when someone is using it to assess how much a good or service is worth. Central Bank The central bank administers the nation's monetary system by either increasing or decreasing the monetary supply, which can increase or decrease inflation, affect interest rates, and control the rate in which increase goods and services. The Federal Reserve can modify the interest rate on money it offers to banks. A higher interest rate composes money to be more expensive, and this discourages banks to lend out money. Dropping interest rates could have the opposite outcome. The Federal Reserve has the power to adjust the reserve requirements. If the Federal Reserve is inferior, the banks could boost their leverage and lend out more money. Recent Monetary Policy in the United States The recent report of the Monetary Policy Report to the Congress was on July 21, 2010. In the statement, it states that the Federal Reserve set aside their goals for...
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...Introduction One of the policies the United States government has to control the supply of money is the monetary policy. This policy recommended to the president of the United States by the Federal Reserve Board by using tools to control the supply of money. Tools used to control the supply of money by the Federal Reserve Board are open-market operations, the reserve ratio, and the discount rate. This paper explains how the Federal Reserve Board uses these tools to control the supply of money, explains how the tools influence the money supply and macroeconomic factors, how money is created, and recommended monetary policy. The Federal Reserve Board A series of bank failures resulted in a severe financial panic in 1907 and millions of depositors lost their savings. Consequently, the National Monetary Commission was established to examine ways of restructuring the banking system to ensure that history does not repeat itself (Economics 180, 2009). To address the problem of restructuring, the Congress passed the Federal Reserve Act in 1913 (FRB: Federal Reserve Act, 2008). There are 12 Federal Reserve banks that act as a central banker for the banks in their region, which perform clearing checks between private banks, holding bank reserves, providing currency, and providing loans. The Federal Reserve Board is controlled by a seven person Board of Governors in which each governor is appointed to a 14-year term by the president of the United States. The long-term is intended...
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...The Federal Reserve Bank As the United States moves towards a globally interdependent marketplace, the global monetary stakes have become much higher. The United States Congress established the Federal Reserve in the early 1900’s. A country’s debt can now become the world’s debt, and the role of the U.S. federal banking system is now considerably more under pressure and scrutiny than ever before. As we have been seeing with the current liquidity crisis in the U.S., and how it has affected U.K. and Asian markets, strong, comprehensive policy-making is now crucial to sustaining long-term economic viability. The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implementing policies intended to offset factors negatively affecting the general financial health of the country. Despite the growing need for quick, precise actions by the Federal Reserve System, the decision-making regarding the economy is often met with controversy. The recent bail out plan, passed by Congress...
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...Federal Reserve Paper Angelika Edwards ECO/212 Principles of Economics March 14, 2012 Dr. Harjanto Djunaidi Federal Reserve Paper The intention of this Federal Reserve term paper is to outline the reason and meaning of money as well as clarify exactly how the Federal Reserve applies monetary policies towards retaining the economic balances. The intent of money, whether it is currencies, credit cards, demand deposits, and revenues of exchange in which we use to purchase merchandises. It is an instrument received in exchange for profit and is an acknowledged statistic that all nationalities agree to take it. Currency includes three roles in the financial system: 1. Medium of Exchange – a worldwide utensil that consents of consumers as well as traders to money trade in a transaction designed for services and goods. 2. Unit of Account – Money also functions by means of a unit of account, providing a frequent quantity of the value of products and services exchanged. Calculating the value or price of a good, in terms of money, enables both the merchant and the buyer to render decisions about how much of the good to supply and how much of the good to purchase. 3. Store of Value – product, exchange, forms of resources that are tradable and stored for imminent use. It is a basic module of the monetary system as it allows exchange to transpire with substances that have inherited profit. An example of store of value is currency. If the worth of currency becomes irregular...
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...Monetary Policy and the Federal Reserve: Current Policy and Conditions Marc Labonte Specialist in Macroeconomic Policy February 9, 2015 Congressional Research Service 7-5700 www.crs.gov RL30354 Monetary Policy and the Federal Reserve: Current Policy and Conditions Summary The Federal Reserve (the Fed) defines monetary policy as its actions to influence the availability and cost of money and credit. Because the expectations of market participants play an important role in determining prices and economic growth, monetary policy can also be defined to include the directives, policies, statements, and actions of the Fed that influence future perceptions. Traditionally, the Fed has implemented monetary policy primarily through open market operations involving the purchase and sale of U.S. Treasury securities. The Fed traditionally conducts open market operations by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. Beginning in September 2007, in a series of 10 moves, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% on December 16, 2008, where it has remained since. With the federal funds target at this zero lower bound, the Fed attempted to provide additional stimulus through unconventional policies. It provided forward guidance on its expectations for future rates, announcing that it “anticipates that, even after employment and inflation are near mandate-consistent levels, economic...
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...Running head: FEDERAL RESERVE PAPER The Federal Reserve is an institution that makes many decisions that affect the American economy. The purpose and function of money will be explained within this paper. This paper will explain how the central bank manages the nation’s monetary system and outline the stated direction of recent monetary policy. The latest action by the Federal Reserve to confirm this direction will be explained. This paper will explain the effects of monetary policies on the economy’s production and employment. Purpose and Function of Money The purpose or function of money is to make an artificial value as a medium used to receive compensation for a service or good. Money makes trade easier between people, businesses and countries. If there was no money, than how would wages be paid to people who produce goods? And how would goods or services be paid for by these people to support them? Typically the value of money can be set by government forces, gold, or market conditions. Management of a Nation’s Monetary System The central bank manages the nation's monetary system by either increasing or decreasing the monetary supply which can increase or slow down inflation, affect interest rates and control the rate in which goods and services increase in relation to one another. The central bank’s main job is to make sure the national currency and monetary supply remain stable. “The Federal Reserve is considered an independent central...
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...The Federal Reserve’s duties are to maintain the stability of the financial system, supervise and regulate banking institutions, conduct monetary policy and provide financial services to the government, such as operating the nation’s payments system. The establishment of the Federal Reserve System and how it conducts monetary policy, through interest rate variance, reserve requirement, money supply and several other programs, is fundamental to understanding the economy as a whole. The Federal Reserve Act, also known as the Glass-Owen Bill, was passed December 23, 1913 under President Woodrow Wilson (Goodseek.com). The Federal Reserve was born from the National Monetary Commission which proposed that the country needed an institution to deal with a poorly regulated banking system that was responsible for economic downturns (WFHumel.net). The original 1913 bill stated that the original act was “to have succession for a period of twenty years” and yet there have only been minor adjustments to the bill since that time (Goldseek.com). Federal Reserve is comprised of 3 divisions: the Board of Governors (BOG), the Regional Reserve Banks, and The Federal Open Market Committee (FOMC). The BOG guides the Federal Reserve’s policy actions, studies trends in the economy, and helps forecast the economic future, In addition, the BOG also participates in monetary policy-making on the FOMC, and is responsible for bank regulations and overseeing the operations of the Reserve Banks (Goodseek...
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...Federal Reserve’s Publication Describe the Federal Reserve’s assessment of the current economic activity and financial markets. The U.S macro economy experiencing a notable extended period of economic expansion led to people believing that the U.S’ economy had become less volatile and prone to recession. Our economy’s growth slowed significantly and was threatened to enter the first recession of the millennium in mid-2000. According to the Federal Reserve the situation of our economy can be viewed from two points of view. The first one suggests that the slowdown in our economy is temporary, short-lived, and reversible meaning its recovery can be “V-shaped.” The second one suggests that the recession will last longer, a more drawn out slowdown, and followed by a weaker and more sluggish recovery also called “U shaped” recovery. This later view is associated with asset price deflation as well as burdensome debt. The current economic activity appears to be moving on the right direction and reversing itself into a near-term recovery. Also another aspect of it is the signs of potential risk of longer-term casual factors at work. The suggestion based on the fragility of the economy is that policymakers must be prepared to react and further preventive steps should be considered. Explain the Federal Reserve’s current view about inflation. There are two types of inflation that are closely tied to each other. Monetary inflation is an increase in the money supply. Price inflation...
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...Course: Name Monetary System In The U.S. And In Foreign Countries Yours Name Professor’s Name [optional] DOS: University Table of Contents Introduction 3 Types of Monetary Policies 4 Different monetary terms that were used and are still used 4 Federal Reserve System and concerned problems 6 The problems with the system 7 Conclusions 8 References 10 Introduction The U.S. Government provides money in a country's economy with the help of a set of institutions known as monetary system. To facilitate international trade, global investment and generally the reallocation of capital between nation states the term international monetary system came into existence. Which help buyers and sellers to communicate more effectively by providing the acceptable means of payment. Now getting towards US monetary system, the United States dollar used to be backed by gold, but in 1971 the US officially withdrew its promise to convert dollars into gold. The US dollar is now considered fiat money because the value of the dollar is derived from legal tender laws that require people to accept dollars as payments of debt. There is no physical limit regarding the amount of unbacked dollars that can be created, because of which there is very little preventing inflation of the US money supply. The Continental Congress issued the first unified currency during the Americal Revolution, which was declared redeemable in gold and silver. Because of excessive printing of notes...
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...as the Federal Reserve System. This is known as the central banking system of the United States of America. The Federal Reserve was first established on December 23, 1913. It was enacted by the Federal Reserve Act. This is an act to provide for the establishment of Federal Reserve banks. Mostly it was to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States of America, and also for other purposes. Over the years different responsibilities and roles have occurred within the Federal Reserve. It did not just consist of the same functions but over time it changed and changed for the good of the country. The major factor that has contributed to most of the change within the Federal Reserve is the Great Depression. The Great Depression was known as a severe worldwide economic depression. There was a high unemployment rate, poverty, deflation, plunging from incomes, and many more consequences. These components sent the United States into a deep state of unstableness. The Federal Reserve System is made up of several different components. These components consist of appointed Board of Governors, the Federal Open Market Committee, and twelve regional Federal Reserve Banks, which are located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils. There are seven members that make up the Board of Governors in the Federal Reserve System...
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