Federal Reserve Importance

Words: 744
Pages: 3
Open Document
Most Americans dig into their wallets, look at their money, and do not wonder where it came from or how it is regulated. But behind the dollar works a mysterious central bank that controls all of nation’s money supply and helps to regulate the economy. In our special program today, I will explain the importance of the Federal Reserve and its role in our economy.
First of all, what is the Federal Reserve and why did it emerge? The Federal Reserve, or the Fed, is the central bank of the United States that controls the money supply through its use of monetary policy. In doing so, the Fed regulates the economy during a recession or high inflationary period, so the economy remains stable. It is also independent from any political influence to better …show more content…
There are seven members that are appointed by the president and confirmed by the Senate that serve fourteen years staggered terms and oversee the activities of the Fed and direct its monetary policy. Speaking of monetary policy, the official policy making body is the Federal Open Markets Committee, or the FOMC. The FOMC is made up of the seven members of the Board of Governors and five of the district bank presidents. The Federal Reserve helps to regulate the money of the United
States’ economy.
How does the Fed regulate money? The Federal Open Markets Committee of the
Federal Reserve use three tools to control the money supply and credit conditions in the country. These three tools include the Required Reserve Ratio, the Discount Rate, and the
Open-Market Operations. The Open-Market Operations, or the OMO, is the primary tool used by the FOMC. The first tool used, the required reserve ratio is a requirement for banks to hold a certain amount of money deposited. The process of continuous lending and depositing in banks help make money. Today, the required reserve ratio is 10%. The second tool is the discount rate. The discount rate allows member banks to borrow money when their reserves are too …show more content…
The Federal Reserve uses these three tools to achieve their policy goals.
When the economy sees high unemployment rates and wants to expand the money supply for economic growth, the Fed will employ expansionary, or loose, monetary policy that lowers the reserve requirement, lowers the discount rate, and government securities are purchased on the open-market. When the economy sees a rise in high price levels and wants to lessen the money supply, the Fed will employ contractionary, or tight, monetary policy that increases the reserve requirement, increases the discount rate, and government securities are sold on the open- market. By using their three tools, the Fed is able to stabilize the economy.
Now that we know how the Fed regulates our economy, let’s take a closer look on how they operated during the 2008 recession. In the summer of 2007 a great recession began from the collapse of an eight-trillion dollar housing bubble. This led to high unemployment and low consumer spending as banks started to fail. As a response of the 2008 recession, the Federal
Reserve implemented expansionary monetary policy to lower the reserve requirement, lower the discount rate, and purchase mortgages. While the monetary policy helped the economy, we
Show More

Related Documents: Federal Reserve Importance

Essay about Shawn Monette Assignment 1

inward shift in the supply of loanable funds and an outward shift in the demand curve for loanable funds. The Federal Reserve is the institution that increases and decreases the money supply by selling and purchasing securities. They also influence the amount of deposits retained within commercial banks and other depository institutions. Using a stimulating monetary police, the Federal Reserve increases the money supply as well as the supply of loanable funds through the purchase of various securities…

Words 1917 - Pages 8

Essay on Unemployment vs. Inflation

Unemployment or Inflation Wall Street Journal Assignment #1 Unemployment and inflation have an inverse relationship meaning that as one increases, the other decreases. According to the textbook, an ideal situation for the Federal Reserve would be to achieve both a low level of unemployment and a low level of inflation. After the 9/11 attacks in New York, the United States was put in a tragic financial crisis that led to the recession in 2008. While the debate for the causes of the 2008 recession…

Words 901 - Pages 4

Essay about Danya Rasheedd

Danya Rashed 1st hour 1 . a). The importance of Media in the formation of Policy Agenda setting by choosing what to cover in the News or on the internet. The importance of elections in the formation of policy agenda because the people of who control agenda are the election winners. b). The role of congressional committees in the enactment of public policy could be holding hearings, marking up legislation. The role of executive orders in the enactment of public policy are the enactin…

Words 474 - Pages 2

Course Project Week7 Essay

DeVry University 02/15/2015 Topic proposal What are the effects of electronic transactions and banking upon the industry and/or monetary policy? Have innovations created greater or less efficiency? What has been the role of the Federal Reserve? Introduction Over the past decades, there is no developed as rapidly as computer technology and electronic communications. Nowadays information technology and especially the Internet is widely used in business. Advances in information technology…

Words 3322 - Pages 14

ECON Practice Essay

Econ 111, Summer 2008 Practice Final Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called ________, and it creates the ________ problem. 1) _______ A) adverse selection; risk sharing B) adverse…

Words 5908 - Pages 24

Tim Fontaine's Colonialism: Suicide And Suicide In Canada

assimilate and Christianise Aboriginal peoples are only some examples of the internal colonialism that litters Canadian history. The reserve system is one element of Canada’s colonial past that is still very much alive today. Reserves were primarily created as way to control and regulate the movement of Aboriginal peoples and their ways of living. Under the watchful eye of the federal government’s Department of Indian Affairs, Aboriginal peoples were uprooted from their traditional territories and moved onto…

Words 1306 - Pages 6

Chapter 8 FIN304 Essay

guiding the Federal Reserve are complex and often controversial. But, we are affected by this policy, and a basic understanding of how it works is, therefore, important. Copyright © 2009 Pearson Prentice Hall. All rights reserved. 8-2 Chapter Preview • We examine how the conduct of monetary policy affects the money supply and interest rates. We focus primarily on the tools and the goals of the U.S. Federal Reserve System, and examine its historical success. Topics include: – The Federal Reserve’s…

Words 3826 - Pages 16

Banking and Financial Institutions Weeks 1-4 Essay

regulate securities exchanges, financial advisers and brokers, trustees and issuers (including issuers of KiwiSaver and superannuation schemes) and The Reserve Bank of New Zealand (RBNZ). RBNZ has many roles and is very important because it has prudential powers over the banking sector, including finance companies and credit unions. The Reserve Bank registers and supervises banks in New Zealand for the purposes of promoting the maintenance of a sound and efficient financial system, and avoiding…

Words 5225 - Pages 21

Lubicon Lake Essay examples

they may have actually welcomed the lack of intrusion from the government of Alberta. Thus, it can be said that the lack of importance placed in getting all first nations tribes to sign the treaty and the lack of governance of this procedure from the provincial and the federal government certainly alludes to the fact that the governments at the provincial level and at the federal level certainly have to bear a large share of the blame in this case and to a lesser extent the Lubicon tribe leaders as…

Words 1495 - Pages 6

Energy security essay Jan 2010

Assess the relative importance of named players in the global supply of energy. Global energy security involves a number of players with varying roles to play; key players include OPEC, National Governments and consumers and TNC’s. All of these players are stakeholders within the energy market and have a varying degree of responsibility within the energy game Governments are responsible for energy resource supply, for example the UK government nationalised the coal industry, meaning that the government…

Words 992 - Pages 4