Johnny Rodriguez Abstract: This paper describes the banking system, the many tools the Federal Reserve has at its disposal and what it uses to prevent, and sometimes enact, financial crisis, the history of the Federal Reserve System and the evolution of the Federal Reserve System in response to the needs of the U.S. economy. The Federal Reserve System was established by Congress when President Woodrow Wilson signed the Federal Reserve Act into law on December 23, 1913.The recurring financial instability and panics in the 19th and early 20th century led congress to create, in response to the panic of 1907 which caused the New York Stock Exchange to drop precipitately 50 percent, the National Monetary Commission to come up with a solution to …show more content…
The Federal Reserve has the power to require private banks what fraction of their deposits must be kept as reserve, and the other portion being allowed to be lent. It has the power to lend money to banks, which the banks themselves re-lend to the general public. The Federal Reserve also has the power to directly set the interest rate on the money that it lends the private banks, which invariably effects the interest rate that private banks loan to the general public which also effects the economy in a systematic way. This in turn affects the total amount of money and credit circulating in the economy, the way individuals bid up prices of goods and services, and controls the aggregate demand of goods and services for the entire …show more content…
“Every piece of gold, which meant that these bank receipts would be worth only a fraction of that gold” Aug 2008 Treasury Direct. Bank were give out more receipts than what they had in store in the bank. When people went to get their gold the bank couldn’t give then any gold. The country was out of control the government didn’t know how to handle the panic of the people they had to find a solution so they creates the Federal Reserve