Federal Reserve System
Federal Reserve System
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INTRODUCTION
The Federal Reserve is the backbone of the American government financial system. It plays a crucial role in controlling and sustaining the government and nation financial system in a stable and good shape i.e stabilize the economic growth of the country. President Woodrow Wilson has introduced the system from about 100 years ago, hence Federal Reserve Act was launched to overcome many issues and obstacles that had occurred in the system (Lowenstein, 2015). It plays important roles to control and main the stability of the economic conditions and mitigate any uncertainty that may occur, this includes sustain market price and increase employment rates, this employed …show more content…
These transactions consist of Fed purchases and sale of monetary instruments. These tools are mostly tools issued by the country’s Treasury, and federal agencies. Also, national corporations provide part of the securities for these transactions to occur. The good thing about open market operations is the ease with which they inject money into the country’s economy (Mayes & Toporowski, 2007). It is almost immediate, making them a suitable tool for monetary policy. More so, they are unlimited; hence could be carried out on a daily basis to adjust the economy in minor calibrations. They work in place of interest changes in these fine calibrations.
The downside with these operations is that the money market has to be developed. Otherwise, the Fed will be unable to exert total control of bank reserves. In this case, the government securities that were already sold become ineffective. Also, an increase in currency requirements may cause a note to be withdrawn. As a result, reserves in banks may not increase, creating unfavorable loan …show more content…
The money is lent to depository institutions such as banks. Money borrowed from the Federal Reserve is mostly meant to fix minor shortcomings (Burgess & Jenkins, 2010). They are useful in that; they trigger changes in the market by influencing the monetary policy. They impact decisions by market players; hence critical in communicating actions aimed at achieving the desired outcomes. Discount rates, though not immediate, affect the economy in the long run. Thus, they are useful in making changes aimed at improving the future.
Nonetheless, they have their shortcomings as well. Since borrowing from the Fed is discouraged, they are rarely useful. They are unreliable in that, they are not constant, hence not suitable for decision-making. Also, high discount rates indicate a restrictive policy, which may inhibit user action such as spending. A number of interests charged on borrowed money, in turn, influences other activities such as consumption and business spending. The downside to this is, if the impact is negative, it spreads throughout the
Name
Course
Institution
Instructor
Date
INTRODUCTION
The Federal Reserve is the backbone of the American government financial system. It plays a crucial role in controlling and sustaining the government and nation financial system in a stable and good shape i.e stabilize the economic growth of the country. President Woodrow Wilson has introduced the system from about 100 years ago, hence Federal Reserve Act was launched to overcome many issues and obstacles that had occurred in the system (Lowenstein, 2015). It plays important roles to control and main the stability of the economic conditions and mitigate any uncertainty that may occur, this includes sustain market price and increase employment rates, this employed …show more content…
These transactions consist of Fed purchases and sale of monetary instruments. These tools are mostly tools issued by the country’s Treasury, and federal agencies. Also, national corporations provide part of the securities for these transactions to occur. The good thing about open market operations is the ease with which they inject money into the country’s economy (Mayes & Toporowski, 2007). It is almost immediate, making them a suitable tool for monetary policy. More so, they are unlimited; hence could be carried out on a daily basis to adjust the economy in minor calibrations. They work in place of interest changes in these fine calibrations.
The downside with these operations is that the money market has to be developed. Otherwise, the Fed will be unable to exert total control of bank reserves. In this case, the government securities that were already sold become ineffective. Also, an increase in currency requirements may cause a note to be withdrawn. As a result, reserves in banks may not increase, creating unfavorable loan …show more content…
The money is lent to depository institutions such as banks. Money borrowed from the Federal Reserve is mostly meant to fix minor shortcomings (Burgess & Jenkins, 2010). They are useful in that; they trigger changes in the market by influencing the monetary policy. They impact decisions by market players; hence critical in communicating actions aimed at achieving the desired outcomes. Discount rates, though not immediate, affect the economy in the long run. Thus, they are useful in making changes aimed at improving the future.
Nonetheless, they have their shortcomings as well. Since borrowing from the Fed is discouraged, they are rarely useful. They are unreliable in that, they are not constant, hence not suitable for decision-making. Also, high discount rates indicate a restrictive policy, which may inhibit user action such as spending. A number of interests charged on borrowed money, in turn, influences other activities such as consumption and business spending. The downside to this is, if the impact is negative, it spreads throughout the