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Macroeconomics: Impacts Of The Federal Reserve

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Monetary Tools.
The Fed uses open market operations to implement its monetary policy to adjust the discount rate without borrowing. Changes in reserve requirements can result in unpredictable changes in the money base, and discount rates increase the probability that the money base will not reach the interest target that is wanted.
Impacts of the Federal Reserve.
A Financial Crisis “occurs when one or more financial market or intermediary ceases to function or function only erratically and ineffectively.” (Robert E. Wright and Vincenzo Quadrini 2009) During the Great Depression the Federal Reserve made some mistakes in preventing such an ugly outcome. Firstly, allowing the stock prices to rise so quickly in the 1920’s caused the enormous inflation of the asset bubble in 1928 allowing the greatest recession to occur shortly after. …show more content…

Furthermore, Basel I and II provides regulators with a more sophisticated way of analyzing bank capital and procedures. Basel exists to help financial marketers with bank debt and equity holders.
Bailouts are designed to restore losses with taxpayer money to alleviate the pressure from banks and financial markets. Controversially, bailouts can increase moral hazard and risk taking with the entity involved. For example, when the Fed used $500 million taxpayer dollars during the Great Depression to create the Reconstruction Finance Corporation (RFC) that enhanced low-interest loans to railroads and troubled banks. Furthermore, bailouts occur as a last resort in an attempt to stop the negative effects on the economy.
The current crisis (2008) was a result of subprime mortgages that were risky which brought about the worst recession since the Great Depression. The trouble started with a major Housing Bubble Asset causing house pricing to soar, accompanied by a lack of action from the Fed; that kept the rates too low for too

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A period of deflation is exactly what occurred, brought on by commodity and mineral prices falling as well as the popping of credit market bubble. In 1930, the economy was contracting a significant amount annually and was accompanied by a soaring unemployment rate of 25% causing depositors to run out on banks, initiating the Great Depression. This forced the Federal Reserve to exercise its powers on a wide scale for the first time since its formation in 1913. Using monetary policy, regulation, and their role as lender of last resort, the Fed had no precedent of which to base their actions off, possibly leading to their numerous failures and

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