Federal Reserve Essay

1003 words - 5 pages

Federal Reserve Paper
In any economic entity money is an important element in trade between buyers and sellers. In earlier times people used the barter system as a means of trading goods or services, and in modern times money is used and had a purpose and function. The Federal Reserve manages the nation’s monetary system using monetary policy tools. Additionally, the Federal Reserve enacts policies to corroborate management of the nation’s monetary system, and these policies can affect the economy’s production and employment.
Economists define money as an asset individuals and firm use as a medium of exchange accepted in compensation for goods or services and in resolution of debts ...view middle of the document...

The Federal Reserve manages the nation’s monetary system utilizing monetary policy tools. To illustrate, the Federal Reserve manages the resource of money and credit of the nation’s financial system, and oversees finance and banking protection laws. The Federal Reserve provides banks and firms with payment services, currency, and functions as the banker by the federal government with financial services for the U.S. Department of Treasury (Hubbard & O’Brien, 2010).
Additionally, the Federal Reserve manages the exchange of funds between regions in the nation and takes action in the liquidity needs locally. Furthermore, the Federal Reserve provides checks and balances internally, and makes sure that one system does not control the nation financial decisions and operations (Board of Governors of the Federal Reserve System, 2010). One monetary policy the Federal Reserve (Fed) uses to manage the nation’s monetary system is Open Market Operations, which allows the buying and selling of government securities on the open market to encourage growth and short-term interest rates (Hubbard & O’Brien, 2010). When the economy needs short-term interest rates or stimulation then the Fed will buy securities from dealers or brokers.
In addition, the Fed will provide financial institutions with Discount Policy on interest for loans from the reserve. The Fed offers financial institutions lower interest rates for loans of the Federal Reserve. With the monetary policy of discount rates financial institutions can provide more loans to individuals and firms, which will increase the money supply (Hubbard & O’Brien, 2010). The monetary policy of Reserve Requirements lowers the reserve ratio to manage lending actions and taxes.
In the recent monetary policy the Fed has a new direction for the United States and the money supply. For example, the monetary policies are made to be clear and evident concerning the scope of the programs and tools employed in response to the financial crisis. The Fed monetary policies placed are to stabilize prices of goods or services, increase employment, and obtain a...

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