The Federal Reserve Evaluation of the role and the effectiveness of the Federal Reserve in stabilizing the current economy The Federal Reserve System is the central banking system of the United States that is responsible for ensuring stability in economic conditions and monetary flow in the economy…
The effectiveness of the role of the Federal Reserve System lies in the monetary policies of the bank. The responsibility of designing appropriate monetary policies is bestowed on the Federal Reserve System by the Federal Reserve Act in order to ensure availability of money and liquidity in the economy and to arrange for provision of affordable cost of credit in order to fulfil the national economic goals. The monetary policies of the Federal Reserve System are aimed at sustaining the level of productivity and create a balance between the supply and demand. The responsibility of the Federal Reserve System also encompasses controlling of inflation rates by fixation of appropriate interest rates in the financial system. The basis of the monetary policies of the Federal Reserve System lies in the inter bank lending policy (Mankiw, 2011). During the phase of revival from the period of recession in the current economy, the Federal Reserve System modified its monetary policies in order to boost consumption demand in the economy by undertaking policies to inject sufficient flow of funds. The interbank rates depend on the Federal fund rate which is determined by the Federal Reserve System. ...
The discount rate is determined by the Federal Reserve System looking at the demand of the economy and providing credits to the banks in required rates to fulfil the demand of liquidity in the economy. The reserve fund requirements are the deposit base held by the banks as a statutory requirement with the Federal Reserve System. The decrease in the reserve requirement as determined by the Federal Reserve policy would help to inject more liquid funds into the economy. The current economic conditions which showed a financial crisis led to the need of increased direct lending by the banks and financial institutions (Allen, 1999). The Federal Reserve System played an important role in determining appropriate inter bank rate to encourage increase in lending for the business. This has been done through increase in open market operations by the Federal Reserve System that has led to the increase in the flow of liquidity ion the economy. A higher level of production in the current economic conditions has created the stage for revival of the economy. This in turn has led to the rise in income levels of the people thereby boosting the spending in the economy. As the banking system was severely hit during the current economic recession, the Federal Reserve System adopted measure to increase the credit to organisations other than banks. The central bank engaged in liquidity swaps with the other central banks of other countries. The usage of derivative products raised giving hope to the recovery of economic conditions. Thus the roles and responsibilities of the Federal Reserve System have been highly significant in establishing a position of stability for the current economy. It is through the policies of the Federal Reserve ...
Cite this document
(“The Federal Reserve Essay Example | Topics and Well Written Essays - 2000 words - 1”, n.d.)
Retrieved from https://studentshare.net/marketing/95498-the-federal-reserve
(The Federal Reserve Essay Example | Topics and Well Written Essays - 2000 Words - 1)
“The Federal Reserve Essay Example | Topics and Well Written Essays - 2000 Words - 1”, n.d. https://studentshare.net/marketing/95498-the-federal-reserve.
Indeed, its confusing structure, organization, and responsibilities make it difficult for American's to understand. In explaining the Federal Reserve, the New York Times describes it as having, “exercised more influence over economic growth and the level of employment than other government entity.”
In simple terms, the Federal Reserve came into being by enactment of the Congress. Consequently, the Congress has the obligation of overseeing the monetary policy and the Federal Reserve. This paper analyzes the importance of the Federal Reserve and strategy in stabilizing the economy of the country.
It strives to be as realistic as possible by considering events that took place since the latest economic recession in 2008. Many unfavourable events affected the Fed since then. Recommendations for improvements in the roles of the Fed were included. There were significant initiatives by the Board of Governors since mid-2012.
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.
It is worth noting that the collapse of the mortgage market was necessitated by Fed lax on the money market. The Federal Reserve addresses the economy by regulating financial institutions, setting monetary policies and operating the countries payment systems.
Similarly, an increase in the money supply increases the cost of loans and people spend less. This reduces the money supply in the economy. Similarly, when interest rates decrease the exact opposite happens and money supply in the economy increases.
1b) Open-Market Operations: In this method, the sale and purchase by central bank in the security market has desired effect on the money supply in the economy.
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.
The key objectives of the monetary policy are stipulated in the Federal Reserve Act. This act asserts that the Federal open Market Committee and the Board of Governors should always strive to promote the goal of stable
It will also evaluate the policies that Federal Reserve used to fix the recession to explain why it was effective in the same. The research arguments will be derived from published articles, credible websites and datasets all for
6 Pages(1500 words)Admission/Application Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic The Federal Reserve for FREE!