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The Federal Reserve Board
Macro & Microeconomics
Pages 2 (502 words)
The Federal Reserve Board, commonly called the Fed, is the federal banking system, its governors, and its regulatory mechanisms. It has a board of governors known as the Federal Reserve Board, regional banks, and smaller banks that own shares in the federal system…
The Federal Reserve Board, commonly called the Fed, is the federal banking system, its governors, and its regulatory mechanisms. It has a board of governors known as the Federal Reserve Board, regional banks, and smaller banks that own shares in the federal system.The Fed is responsible for regulating the economy through the control of the money supply. They are also charged with the oversight of the banking industry to insure compliance by the participants. They also act as the servicer for several other banking institutions.One of the primary functions of the Fed is to stabilize the economy. There is some debate about when the Fed should act as a stabilizing force and when it should act as an energizer or cooling factor. However, generally the Fed tries to maintain a stable growth rate, low inflation, and optimize the unemployment rate.Controlling the money supply and the interest rate regulates these factors. By lowering the interest rate, money is easier to borrow and the economy picks up steam. However, this may also create inflation. By raising interest rates, the money supply contracts and inflation falls. At a recent meeting, the Fed left the interest rate alone saying they were more concerned about inflation than a weak economy (Fed Leaves). However, with falling inflation there is a risk of rising unemployment. The Fed carefully balances these variables to keep the economy on an even keel.The Fed can also increase the money supply by increasing the reserves held by banks that loans are drawn against. ...
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