Federal Reserve

Respond to the following in a minimum of 175 words:

Explain the major functions of the Federal Reserve.
Discuss why the money supply curve is vertical.

ANSWER

Federal Reserve

Congress established the Federal Reserve Bank in 1913 as a way of responding to bank failures that emerged from the sharp decrease in credit availability. During the great depression, the banking policy of 1935 allowed the federal to implement regulations meant to stabilize money and credit availability. Currently, the Fed is part of the United States economic system. Due to its significance, it is essential to understand its role and its effects on business loans, interest rates, and the economy in general.

The Federal Reserve’s primary functions include maintaining an effective and trusted payment system, supervising and controlling bank operations, and designing monetary laws. American voice documents that the Fed’s essential tool to carry out economic regulation is the buying and selling of the United States government securities, which is frequently called open market operations.

The Fed also has the mandate to change monetary regulations as well. In addition to selling securities, it can also increase the discount rate and interest rate it charges financial organizations for short-term loans. In summary, banks acquire a discount when they get their finances from the bank. The Federal Reserve also has a responsibility to change the reserve requirement. A bank’s reserve requirement is the foundation of the country’s fractional reserve banking system, which outlines that the bank only has to store a small portion of its consumer’s deposits on hand. The remaining finances are made available to give other people for business, personal, and home loans. The process creates money and subjects it into play in the economy. Adjusting this reserve hinders the amount of money the bank can utilize, and when the Fed alters the reserve requirement, banks will either lend more or less money.