...The Federal Reserve was a government institution set up after the Great Depression to stabilize the economy, failed to do the duty that it was set up for. It allowed excessive loans and bonds trading in the billions and pre-known shaky investments just because the sun was shining high and bright on the US economy (Chan). This goulash of financial sector mishaps contributed heavily to the near total collapse of the whole American economics system. Not only that but the Federal Reserve can also cause the next recession. Federal Reserve rates have been at an all-time low since the advent of the Great Recession. Low interest rates was the medication for a struggling economy. It was intended to encourage banks to lend to small businesses and spur...
Words: 374 - Pages: 2
...The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed can control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession. The Federal Reserve The Federal Reserve uses three main tools in order to control the money supply. The first tool is open-market operations. These operations consist of the buying and selling of government bonds to commercial banks and the public. Open-market operations are the most important tool that the Fed can use to influence the money supply (Brue, 2004, p. 252). By buying bonds from the open market, the Federal Reserve increases the reserves of commercial banks that in turn will increase the overall money supply in the country. The opposite is true if the Fed sells bonds on the open market. By doing so, the Fed reduces the reserves of banks and, in turn, takes money out of the system. By being able to control how much money the commercial banks can lend, the Fed has a very powerful tool to adjust the economy. The second tool in the Federal Reserve’s arsenal is the adjustments of reserves ratio. The reserves ratio is the required amount in which a bank must have at all times. By raising...
Words: 1148 - Pages: 5
...What is the Federal Reserve? The Federal Reserve is the main bank of the United States government. The Federal Reserve is also the same bank that governs all other banking institutions in the United States. The Federal Reserve consists of 12 banking districts and is run by a Board of Governors. The Federal Reserve bank was created by the United States Congress in December of 1913. The Federal Reserve has some very important responsibilities which include adjusting monetary policy, price stabilization, monitoring and controlling inflation, and maintaining low interest rates to encourage economic growth. Aside from these very important responsibilities the Federal Reserve also acts as a financial institution for the United States government as well as central banks to foreign countries. The Federal Reserve is also responsible for ensuring adequate research is conducted on both the United States economy as well as the individual regions within the United States. They also take up the responsibility of educating people on what they do and how they do it through many different channels of media, such as: speeches, publications, web sites, and educational seminars. What are the factors that would influence the Federal Reserve in adjusting the discount rate? When it comes to the Federal Reserve adjusting the discount rate there are a few factors that play an influential role. The current state of the economy and the direction that the economy is moving are the...
Words: 1814 - Pages: 8
...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...
Words: 2543 - Pages: 11
...The Federal Reserve Name: Jane Doe Course: Eco 320/Understanding Prof. John Smith Date: 11/28/2012 It would not be an overstatement to say that the U.S Economy is very strong at least compare to other countries. One is sure that listening to the news and the politicians in Washington, DC they render a different opinion. But these tactics are just to scare people and make believe on ideals that have nothing to do with the actual state of the Economy. The fact is we now live in a global economy and what happen in Europe can have a major affect in the U.S economy. The European Union is not very stable at this moment and probably never will be stable, because the adaption of the Euro has failed on its main objective. The U.S Dollar is still the preferred and trusted paper for the world to conduct trade. The role of the Federal Reserve is to keep that trust and confidence in the U.S Dollar at home and abroad. To gain more prospective on the role of the Federal Reserve it is imperative to answer and explain the following questions: Evaluate the role and effectiveness of the Federal Reserve in stabilizing the current economy. 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...
Words: 3425 - Pages: 14
...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...
Words: 1840 - Pages: 8
...The Federal Reserve Ryan Butler 23 August 2011 Evaluate the role and effectiveness of the Federal Reserve in stabilizing the current economy. 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 implement policies intended to offset factors negatively affecting the general financial health of the country. Now, as the United States moves towards a globally interdependent marketplace, the stakes are much higher than they were when 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. Even despite the growing need for quick, precise actions by the Federal Reserve System, the decision-making regarding the...
Words: 3156 - Pages: 13
...Abolish the Reserve For the future of the United States economy, the Federal Reserve needs to be put into congresses hands, audited, and ultimately abolished. Many U.S citizens do not pay attention to the economy. Many citizens just go about life wondering about why they have financial issues; people go straight to the president of the United States to blame. People never think of the big picture, yes the United States is in a ton of debt, but why? Moreover, how did the debt even start? That should be the question people need to be asking; instead of pointing fingers on a situation that the people know so little about. It all begins at the Federal Reserve, as Ron Paul said “To understand what is wrong with the Federal Reserve one must know the nature of money.” Background Few may ask, what is the Federal Reserve? Created in Dec. 23, 1913, the Federal Reserve, also known as the “FED” is the central banking system of the United States. Due to the financial panic in 1907, also known as the 1907 Bankers Panic, there was a huge financial scare for the U.S economy. The New York Stock Exchange fell about 50 percent from its peak in 1906, the following year the big panic arose. The economy fell dramatically and spread throughout the nation causing many banks to claim bankruptcy. Without a central bank to liquefy the market, many wealthy people including J.P Morgan, put large sums of their own money in the market, keeping the economy from going under. The following year, the Congress...
Words: 3531 - Pages: 15
...the Economy Scott Miller English Composition 1 October 18, 2008 Outline: The influences of Alan Greenspan on the Economy -About the Federal Reserve 1. Year Alan Greenspan appointed. 2. Duties of the Federal Reserve -Alan Greenspan as Federal Reserve Chairman (1987) 1.Stock Market crash -Savings and Loan Crisis (1988-1982) 1. Bank Failures 2. Recession -Economy Growth(1993-2000) 1. Dot.com ere 2. Federal Surplus 3. Millennium 4.Clinton Era -(2001), and beyond on the economy 1.President Bush 2.9/11 3.Recession 4. Dot.com bubble 5. Housing boom and bubble -Conclusion(2006) 1. Greenspan Retires Alan Greenspan was the Federal Reserve chairman for the last nineteen years he was the longest chairman in that position. Alan Greenspan was first appointed by President Ronald Reagan in 1987 and retired under President Bush in 2006. The chairman of the Federal Reserve is appointed every four years by the president, and then the Senate. The Federal Reserve is in charge of the financial system in the United States, and is independent part of the government that is not influenced by politics. The duties of the Federal Reserve are to preserve a sound banking system, preserve the power of dollar, print money if needed, and to regulate interest rate policies. Alan Greenspan had massive influence on the economy when...
Words: 1820 - Pages: 8
...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...
Words: 1356 - Pages: 6
...Federal Reserve Adam Green ECO/372 September 25, 2012 Caryn Callahan Federal Reserve Various factors affect the health of the United States economy, and there is a set of tools used by the Federal Reserve to control the effects of these factors along with current and future money supplies. This paper will review the influence of the Federal Reserve's economic tools on the United States' economy. One of these tools, the discount rate, is regulated by the Federal Reserve and can alter interest rates for lenders and borrowers. Monetary policy is a process to regulate the economy and money supply within the United States and adjusts to the state of the economy. Different economic times call for a change in policy and with this the money supply will follow suit. The discount rate, set by the Federal Reserve, is the interest rate for banks that borrow money from the Federal Reserve. This rate is usually set higher than the federal funds rate to discourage banks from borrowing directly from the Federal Reserve, unless all other options have been exhausted (Colander, pp. 348-349, 2010). Banks have the option to borrow from other banks and here is where the federal funds rate would come into play. The state of the economy guides the Federal Reserve in adjusting the discount rate, and this rate is an excellent tool to manage the money supply. If the economy is slow, a lower discount rate can jump start spending throughout the United States. One the other hand, rapid growth can...
Words: 892 - Pages: 4
...Federal Reserve Arlisha James ECO/372 October 16, 2012 Jonathan Edelman Federal Reserve The purpose and function of money in today’s world market are still assets in which citizen’s exchange for goods and services received or for paying one’s creditors. Revenue (cash) is utilize in implemented to do four operations, which is store accounts, medium exchange, unit of account, and standard of deferred payments. The banking system that is used by the United States is called the central bank controlled via the Federal Reserve Bank. The Federal Reserve Bank is regularly checks out the economic health of the United States to maintain the monetary police to help it become steadfast. The Federal Reserve three tools of monetary policies to aid in the balance of the United States economy are discount policy, open market, and reserve requirement. The three tools, which are at the Federal Reserve disposal help the central bank to regulate the supply and demand, and to alter the level of deposits made into banks accounts. The Federal Reserve’s watches very closely at the direction of the economy because of the very low and slow recovery of the economy the Federal Open Markets (FOMC) committee has changed the way one maintains federal funding rate. “At the end of June the Federal Reserve concluded its purchases of long-term Treasury securities under the $600 billion purchase program announced in November 2010; that program was undertaken to support the economic recovery and help...
Words: 713 - Pages: 3
...Federal Reserve Presentation Federal Reserve Presentation Introduction: The central Bank of the United States is known as the Federal Reserve. It is characterized by a unique structure which includes 12 Reserve regional banks and a federal government agency who’s Board of Governors is located in Washington D.C. It was created in 1913 after a series of financial panics and in particular that of 1907. Three imperative key objectives were established, they include stable prices, maximum employment and reasonable long term interest rates (Hetzel, 2008). Factors that would influence the Federal Reserve in adjusting the discount rate Factors that would influence the Federal Reserve in adjusting the discount rate include: Money supply: When money supply in the economy increases, the Federal Reserve increases the discount rate to encourage more savings Rate of borrowing: When the rate of borrowing is high the Federal Reserve increases the discount rate to discourage borrowing. Available reserves: When the available reserves decrease, the Federal Reserve decreases the discount rate to encourage more savings. Interest rates: This is where a decrease in interest rate would culminate into a decrease in the discount rate (Brezina, 2012). Does the discount rate affect the decisions of banks in setting their specific interest rates? The discount rate charged on the commercial banks by Fed for reserve lending is unavoidably less than the Federal funds rate....
Words: 963 - Pages: 4
... This paper will first describe what the president, congress and the Federal Reserve do to stimulate and contract the economy. Next, this paper also will identify what motivates policymakers to stimulate or contract the economy. Then this paper will explain what the Federal Reserve says about policy goals and the strength of the economy. Lastly, the strength of other economies outside the United States as on Apple Inc. and what changes are recommend in Apple Inc.’s competitive strategies or supply chain will be discussed. Stimulating and Contracting the Economy When the economy is steady it helps businesses flourish and stay prosperous. When it is time to stimulate the economy it is ordered by the President and Congress. The President will propose a budget for the upcoming fiscal year; these proposals are presented to congress for approval. There are many ways a stimulus can occur; creating tax breaks and job creation are a few. The American Jobs Creation Act was created in 2004, within this act bipartisan support, infrastructure investments, tax breaks for small businesses and unemployment help were included (Boushey, 2011). Another option to stimulate the economy is to decrease interest rates. When you start talking interest rates, this is where the Federal Reserve steps in. The Federal Reserve has control over interest rates. When the interest rates are lowered, it affects the economy on a broader scale when it comes to consumption, business, investment,...
Words: 987 - Pages: 4
...Federal Reserve Paper Elias Bettencourt ECO/372 Charles Meyers The Federal System is a banking system of the United States. The Federal Reserve is accountable for the sum of currency and credit in the economy. The Fed can be looked at as like a gatekeeper of the U.S. economy. It is the most powerful organizations on this earth because it watches over the world’s largest economy. Reserves are the credits that a bank contains at the Federal Reserve Bank as well as its money on hand. The key points to hit on are how does the federal funds rate affect the decisions of banks in setting their specific interest rates? How is the federal funds rate changed? How does monetary policy aim to avoid inflation? How does monetary policy control the money supply? As well as what indicators are evident that there is too much or too little money within the economy? The Federal Reserve is trying to keep up with a healthy economy and if the economy gets slow the Fed will make a decision to lower the interest rate in hopes that it will make more money available to businesses, households, and consumers. Many consumer interest rates are influenced by changes made up of the Fed. The part of choosing particular interest rates is the responsibility to the Federal Reserve Board. As the Federal Reserve increases or drops temporary interest rates, banks may increase or decrease the interest rates they charge debtors, together with the main rate. The monetary policy relies on the connection among...
Words: 717 - Pages: 3
