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The Federal Reserve Act Of 1913: A Case Study

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The Federal Reserve Act of 1913 gave the Federal Reserve the responsibility for setting monetary policies. The term refers to action taken by a central bank to influence the availability and cost of money and credit to help promote national economic goals, according the Federal Reserve website. This Act also helped to create a unified national money system and permitted mortgage loans. Mortgage loans were new at this time. Now, what is the Federal Open-Market Committee (FOMC)? Well, the FOMC is a committee from the Federal Reserve created under the Banking Act of 1933. They are responsible for open-market operations, the purchase and sale of securities in the open market by a central bank, states www.federalreserve.gov. (Collander, 2012 p. 294) adds to the definition, purchase or sale of Treasury bills and bonds. Funds from transactions are then deposited into an account that can be used as loans by the bank, due to excess reserves, which is a good thing. What is the purpose of open-market operations? It will expand the economy or contract the economy. …show more content…

This open-market process will cause the interest rate to fall. Due to this, the economy would expand called the expansionary monetary policy. If the Federal Reserve sells the bonds it produces what is called the contractionary monetary policy. When this is done, it takes money away from the banks. Now, interest will go up and income will go down. Now that there are more funds available to lend, the interest typically will drop. With lower interest rates, more people are likely to borrow, both personal loans and business loans. With the increase in expenditures, the economy is stimulated. Consumer confidence in the economy equates to spending. Spending creates jobs and more confidence in the

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