This week’s reading material proved to be very informative as well as eye opening. There was a lot of information covered concerning the Federal Reserve System that we all found to be very interesting. According to (Colander, 2010), “Money is a highly liquid financial asset that serves as a unit of account, a medium of exchange, and a store of wealth,” before this class we never really looked at money in this manner. We all know that money can be used in many ways for many things, but before this class we never really stop to ponder the role of the Federal Reserve System and the part it plays in implementing U.S. monetary policies.
“The Federal Reserve Act was established on Dec. 23, 1913. The main function of this politically independent entity is to set the nation's monetary policy and to step in as a lender of last resort by providing emergency liquidity to prevent a collapse of the country's financial pipeline”. (Srinivasan, para. 1) Most recently our economy experienced a government shutdown and no one liked the outcome of the shutdown. The shutdown left many of us wondering, where on earth do we go from here and how will the government ever bounce back from this tragedy.
This week’s material helped us to better understand the goals that are implemented by the Federal Reserve System. “The six main goals of monetary policy (and by extension, of the Fed) are price stability, high employment, economic growth, financial market and institution stability, interest rate stability and foreign-exchange market stability.” (Mann. para. 2) We all understand that when prices are stable consumers are more prone to spend money. When employment rates are high people are placed in a situation that allows them to make money as well as spend money. When people are spending money this causes economic growth. Foreign –exchange markets are more conducive when the markets are stable verses rocky or unpredictable.
When the economy is in a bad state the government as we know it will cease to function. When this happens we as a people become worried about how we are going to make it from one day to the next because a lot of us rely on the government for things like jobs, food surplus, medical needs, and monthly income. Through reading and open discussions we also discovered that the Federal Reserve utilizes three instruments of monetary policy. “The Federal Reserve’s three instruments of monetary policy are open market operations, the discount rate and reserve requirements.”
(federalreserveeducation.org)
This week’s material proved not to be as much of a struggle as we assumed it would be. We did however discover the benefits gained by having the Federal Reserve System in place especially as it relates to our daily lives. We also learned it does no good to have polices in place if there is no tool in place to help implement them, and each tool listed above serves their own individual purposes. Each tool used helps the Federal Reserve with keeping the economy in a positive state and that is beneficial for all involved.
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