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The Federal Reserve Essay

1130 words - 5 pages

The Federal Reserve
University of Phoenix
ECO/212

   
Money was made with the purpose to assist in the exchange of services and goods with the different values between consumers and businesses around the globe. Money is controlled and created by the central bank in the nation; the central bank being the Federal Reserve. The Federal Reserve, or often referred to as the FED, determines the value of the dollar and is constantly evaluates the economic strength as well as making essential changes to the financial policy. The FED does this as an effort to stabilize the health of the economy since the economy becomes more resourceful when it has only one item serving as its ...view middle of the document...

Just as a regular commercial bank operates, so does the central bank. The central bank also charges an interest rate to borrowers; their main borrowers being the government of whichever country the bank is made for as well as other commercial banks that uses the central bank as a means of last resort. There is one distinction aside from a regular commercial bank and that is a central bank has a monopoly for generating that nations currency that in turn is borrowed out to the government as a form of exchange. Many of the well-off countries use an independent central bank that functions under rules intended as a way to put a stop to any biased interference. One example of an independent central bank is the Federal Reserve System, which is located in the United States. Central bank can either be privately or publically owned, however; The Federal Reserve is not owned by anyone, rather it is an independent unit inside the government that serves with both private and public positions (Mankiw, 2007).
The Federal Reserve System also referred to as the Federal Reserve or just the FED, main purpose is to regulate and circulate the supply of money around the globe. Every bank in the country falls under the FED. The Federal Reserve keeps an eye on the banks finances and stability as banks that may be having issues may seek assistance from the FED. The Federal Reserve is also accountable for the overall general status in the economy. To aid them with such tasks, the Federal Reserve has what is called the Federal Open Market Committee or FOMC. The FOMC consists of members from the Board of Governors of the FED as well as five presidents from the reserve bank. The FOMC hold eight scheduled meetings throughout each year. The FED controls three sections of the monetary policy; discount rate, open market operations, and reserve requirements. The Board of Governors is in charge of the discount rate and reserve requirements while the FOMC is in charge of the open market operations (Federal Reserve, 2010).
Using these tools as a guide, the Federal Reserve is able to control the supply, demand, and balances the depository that the FED has on hold. By doing this they are able to adjust the federal fund rate; the rate that is the interest rate of the deposit institutions for borrowed funds...

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