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Macroeconomic Effects Of Cutting The Fed Base Rate

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The Macroeconomic Effects of Cutting the FED Base Rate

The Federal Reserve System is implementing monetary policy, which have goals of price stability and maximum employment. The Fed uses three tools for these purposes: the discount rate, reserve requirements, and open market operations.
The Fed Funds Rate is the short-term interest rate at which commercial banks, savings and loan associations, credit unions, etc. lend to each other overnight within the Federal Reserve system.
The U.S. Federal Reserve sets a target for the Federal Funds Rate, and keeps the rate on target by providing open market operations - the buying and selling of U.S. Treasuries. The Fed sells debt when it wants to decrease money supply, and buys it when the Fed wants
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Through the open market operation the Fed can try t o promote and/or achieve aggregate demand growth which is the sum of private consumption, investments, government spending and imports by purchasing government securities on the open market. This will definitely yield specific economics results which will include an increase in the reserves of commercial banks, an increase in the price of government securities and an effective decrease in government securities' interest rates and the overall interest rates. The move can effectively promote business investments. Whenever banks increases the reserves, they increase their loans and investments. The sell of those government securities will definitely do the opposite.

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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 is both a private and public government institution that is necessary for the country’s economic stability. According to Newsweek, The chairman of the Fed is considered the second most powerful man in the United States with his ability to keep the economy stable on the verge of a financial crisis. The creation of the Fed was due to the Panic of 1907, where a series of stock market speculations caused several large to lose a great deal of money. In order to prevent future speculations, Congress passed the Federal Reserve Act 1913. This act entitled the Fed to manipulate the money supply as needed giving it two powerful jobs: a lender in last resort and to carry out the Monetary policy.

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Introduction The central bank of the United States was founded by Congress to provide a safe, flexible and stable monetary and financial system. The Federal Reserve carries out the nation’s monetary strategy guided by the goals set forth in the Federal Reserve Act, namely "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. " The central bank, also known as the Federal Reserve System is made of a central governmental agency in Washington, DC, the Board of Governors and 12 regional Federal Reserve Banks in major cities throughout the United States. Body

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With its power to stabilize the financial industry and consolidate monetary policy under a single body, the Federal Reserve is a vital component of the US economy. The independence of the Federal Reserve, which spares it from the influence of political demands, is one of the institution's advantages. This independence aids in keeping the Fed from adopting measures that could be advantageous for reelection in the short run but would cause long-term economic harm down the road. In addition, the Federal Reserve's function as a lender of last resort to commercial banks guarantees that banks will always have access to money when they need it and contributes to the stability of the banking system. The Fed has been successful in lending money to banks

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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 Federal Reserve uses Open Market Operations as their primary tool of monetary policy. It's favored because it is flexible, which means it can used on short notice. The Federal Reserve actually uses it everyday, but to a lesser extent, it's only when the economic situation is more severe that they use it to a greater extent. OMO works by buying and selling government bonds, which influences the base money supply as well as interest rates. This in turn affects the aggregate money supply, expanding or shrinking it.

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Abstract The Federal Reserve is the central banking system of the United States that was signed in 1913 by President Woodrow Wilson to promote a strong American economy. This independent system provides monetary policies which help create a high employment rate and positive attributes to obtain a stable financial system that benefit the people of the whole nation. It was primarily created to control the money supply and encourage the banks of the country to provide a secure place to ensure the money. However, this system also can create a negative effect due to the way it manipulates interest rates and ability to devaluate currency.

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The lowering of interest rates also promotes consumer spending. During an economic crisis, the Federal Reserve helps the economy by providing more employment. The Federal Reserve is an independent bank. This means it operates separately from Congress and the president, minimizing political influence and pressure. Overall, they use their power to promote economic growth.

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During the early years of the depression, FED followed continuously a restrictive monetary policy, what many economists believe was what turned a recession into a depression. In the years 1930-1933, more than 9,000 banks failed (50%) and the money supply fell from 26.6 billion dollars to 19.9 billion dollars. At this time, the unemployment rate increased from 3.2 to 24.9 percent. What economists generally argue on, like Friedman and Schwartz is that the FED should have reduced the discount rate which allowed member banks to borrow, and purchase bonds through the open market operations, in order to fight bank failures and unemployment in the U.S economy, this way also contributing to increases in the money supply. Yet, the Federal Reserve paid more close attention to the international gold standard.

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It is easier to manage higher interest rates that it is to manage inflation. How the Fed affects the

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The Federal Reserve controls over the federal fund rates give it the ability to influence the general level of short-term market interest rates. The Fed has three main tools at its disposal to influence monetary policy which are the open-market operations, discount rate, and reserve requirements. b. Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and rate of the money supply, which in turn affects interest rates. The concept of Monetary Policy simply stated is that the cost of credit is reduced, more people and firms will borrow money and the economy will heat up. c. The controls that Federal Reserve used worked because the use of the three main tools the Fed uses is the most important that can manipulate monetary policy.

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Frances Fitzgerald, in her analytical essay “Rewriting American History” (1979), asserts that over the course of time, content in history books has evolved to “such an extent that even an adult would find the unrecognizable.” She supports her assertion by intermitting robust diction, utilizing convoluted syntax, and capitalizing on cogent anecdotal evidence. Fitzgerald’s purpose is to reveal the consequence of rewriting history and how it creates a “certain level of unpleasantness” to history schoolbook writers and publishers, teachers, and school districts in order to expound the struggle students must endure with the inconsistencies. She embraces an astute tone (“Even more surprising than the emergence of problems is the discovery that the great unity of the texts has broken.”) to accentuate to history textbook publishers and writers, teachers, and school districts that history textbooks need to be as objective, candid, and free from superfluous additions as possible with the production and teaching of them. Appendix: 1.

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The Fed’s main desirable goals are low unemployment, economic growth, price stability or low inflation, and financial market stability. The Federal Reserve’s profession is to also encourage a “sound banking system” and a well economy. To reach this goal, the Federal Reserve has to fulfill as “the banker’s bank, government’s bank, and the nation’s money manager” (Investopedia). The Fed also sells and saves the government’s securities, which supplies the country’s paper currency.

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People withdraw money from the banks which then decreases the amount of money that the bank can lend. Since the Fed now holds that money, the amount of money in the economy

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