How Does The Federal Reserve Act Affect The Economy
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The Owen Glass Federal Act of 1913 was made to protect the economy by setting a Federal Reserve System. An operation that is supervised under a board in Washington D.C. They have the power to set the interest rates which is charged to the other banks by the reserve banks. The objective included of financial Danes and availability of cash from a money reserve.
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I will describe how expansionary activities by the FED impacts credit availability, money supply, interest rates, and security prices. The FED uses expansionary activities to control credit availability to banks either up or down depending on what it sees as needed. This is done through the ratio rate. The lower the rate the more money a bank has to loan. The lower the rate the less money the bank has to keep on hand which means the bank has more money to loan(Tarver, E.,2015, May 28).
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The Federal Reserve bank is the central bank of all American banks. Its main job is to make sure the America economy is safe and sound. It is known as nicknames such as the “Fed” and ‘The Banks’ Bank.” For many years this “banks’ bank,” is met with animosity. In an article on the BBC by Zoe Thomas, titled “Why do many Americans mistrust the Federal Reserve?”
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While it is not written anywhere in black and white admitted by the Federal Reserve System, it is solely responsible for the Great Depression in 1929. The Federal Reserve can make money “out of nothing” because it is not backed by gold or anything at all. This unrestricted money creation then led to a bubble in the stock market and set up the economy for a completely catastrophic downfall. People started to buy stocks because of the artificial low interest rates set by the Federal Reserve creating money. This caused the stock market to crash and led into the Great Depression.
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To conduct the nation’s monetary policy is to “promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;” (Board). The Federal Reserve promotes the stability of the financial system. Promoting the stability of the financial system is to seek to “minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;” (Board). The Federal Reserve promotes the safety and soundness of individual financial institutions, “and monitors their impact on the financial system as a whole;” (Board). The Federal Reserve “fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments;” and “promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of
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Congress created the Federal Reserve System, which is the central bank, on December 23rd, 1913. Dual mandate, which is the Fed’s main goals, focuses on maintaining low inflation and having a low rate of unemployment; allowing the Fed to have a clear objective in what they are trying to accomplish. The main roles of the Fed in the U.S. economy are open market operations, open market purchases, open market sales, the discount rate, and required reserves. Thus, it revolves around monetary policy and creates different ways to alter and affect how the economy is running.
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The article touches upon the recent increase in interest rates that the new chairman of the American Federal Reserve has implemented on the American economy. An interest rate is the price of borrowing money. Consumers and investors borrow money from banks which they later must return, also known as the principal, in addition to the initial amount borrowed they pay a percentage of the principal, known as the interest rate. This is one of the ways that banks earn money. Central banks have two primary responsibilities: to regulate and oversee the nation’s commercial banks by making sure that banks have enough money in reserve to avoid bank runs and to conduct monetary policy which is increasing or decreasing the money supply to speed up or slow down the overall level of economic activity.
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economy receives. Regulating the amount of money the economy receives affects interest rates and the behavior of the economy. The objective of Monetary Policy is to augment employment, balance prices and interest rates, and most of all, ensure economic growth. The Federal Reserve focuses on open markets to regulate the amount of money banks have. This involves the purchasing and retailing of government securities.
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It is not true that Federal Reserve has an unlimited supply of money. It has reserves which it is used during the period of crisis/liquidity crunch to generate money in the economy. Through its tools of open market operation, the Federal Reserve manages monetary policies in the economy. To encourage investment/borrowing, the Federal Reserve lowers interest rates. To fight the impact the financial crisis in 2010, the Federal Reserve decided to buy mortgage-backed bonds as part of its effort to boost the economy.
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Analysis of Monetary Policy and Policy Actions Taken by the Federal Reserve: Monetary Policy refers to what the Federal Reserve does to influence the amount of money available to consumers and the interest rate at which people can borrow money. By modifying interest rates, buying or selling government bonds, or changing bank reserves the Federal Reserve is able to influence the market through the Monetary Policy by either expanding or contracting the money supply. Reasons that the Federal Reserve would want to influence the market include lowering unemployment, increasing consumer spending, or controlling inflation.
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Reviewing The Federal Reserve System It is believed that The Federal Reserve System contributed to the failure of the Silicon Valley Bank because it lacked an effective structure. The framework and systems of The Federal Reserve System has been reviewed to improve the efficiency and effectiveness. The Federal Reserve System is defined as “the central bank of the United States, whose main job is to control our rate of monetary growth” (Slavin 2020). Under the supervision of The Federal Reserve System, the Silicon Valley Bank failed.
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