Federal Reserve System Research Paper

644 Words2 Pages
bulb-icon

Recommended: The federal reserve system essay

The Federal Reserve System is the central bank which regulates and controls the monetary and banking system. Their primary focus is to regulate the health of the economy as a whole and implements monetary policy to help increase the money supply during a downturn, and restrict the money supply during periods of excessive growth. During periods when the economy faces high inflation, federal reserve will use contractionary monetary policy by decreasing money supply which in turn results in higher interest rates, lower investment spending, and lower consumer spending. In contrast, when the economy encounters a recession, federal reserve will utilize expansionary monetary policy by cutting interest rates or increasing the money supply to boost economic activity. During expansionary monetary policy, higher investment spending will raise income and higher consumer spending will help the economy. A tight (contractionary) monetary policy occurs when Federal reserve (central bank) raises the …show more content…

This will have a bad effect on homeowners with a mortgage and small business owners due to the increase in interest rates and decreased money supply in the market. The interest rate is determined by the interaction of the demand and supply of loanable funds market. “Increases in demand will increase both the interest rate and the total amount of borrowing and lending. Decreases in demand will decrease both the interest rate and the total amount of borrowing and lending. Increases in supply will decrease the interest rate and increase the total amount of borrowing and lending. Decreases in supply will increase the interest rate and decrease the total amount of borrowing and lending”(Macroeconomics Bus 302 Lab concept 4). Therefore, when the federal reserve tightens the monetary policy, the housing mortgage supply will decrease and as a result interest rates go

Show More
Related

  • Dinner Party Economics Summary

    1243 Words  | 3 Pages

    When interest rates on loans are high, this leaves people with less disposable income resulting in less consumer spending. Depending on where the economy stands, this can be good or bad, as it would lead toward recession. But that may be exactly what is intended in order to decrease spending if the economy is currently experiencing over-inflation. The government may intentionally send the market into a recession rather than potentially risking too high levels of inflation. On the other hand, if the economy were already in recession this would only make the recession worse. In the situation where the economy is currently in recession, the government is instead going to change the overnight rate in order to therefore lower interest rates on loans in order to provoke consumer

    Read More

  • The Financial Crisis of 2007-2008 and The Federal Reserve

    2612 Words  | 6 Pages

    The demonstration in this research is simple and the resources are not rich enough. The query to the relevance between the monetary policy and the house bubble still has not been answered. The level of effect the monetary policy made to the financial crisis is still has not been assessed.

    Read More

  • The U.S. Free-Enterprise Economy

    788 Words  | 2 Pages

    Monetary Policy is another policy used in Keynesianism which is a list of protocols designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system, also known as the central banking system in the U.S., which holds control of this policy. Monetary policy has three tools used by the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rate a bank will charge.

    Read More

  • The Federal Reserve and Macroeconomic Factors

    1460 Words  | 3 Pages

    The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession.

    Read More

  • Fed and Interest Rates

    1148 Words  | 3 Pages

    When the Fed decides the economy is growing at too quick a pace, or inflation is getting out of hand, it can take actions to slow spending and decrease the money supply. This corresponding with the money equation MV = PY, by lowering both M and V, P and Y can stabilize if they are increasing too rapidly. The Fed does this by selling securities on the open market. This, in turn, reduces bank's reserves and forces the interest rate to rise so the banks can afford to make loans. People seeing these rises in rates will tend to sell their low interest assets, in order to acquire additional money, they tend move toward higher yielding accounts, also further increasing the rate. Soon this small change by the Fed affects all aspects of business, from the price level to interest rates on credit cards.

    Read More

  • The Federal Reserve System

    1079 Words  | 3 Pages

    The Federal Reserve System was founded by Congress in 1913 to be the central bank of the United States. The Federal Reserve System was founded to be a safer, more flexible, and more stable monetary financial system. Over the years, the role of the Federal Reserve Board and its influence on banking and the economy has increased. Today, the Federal Reserve System's duties fall into four general categories. Firstly, the FED conducts the nation's monetary policy. The FED controls the monetary policy by influencing credit conditions in the economy. The FED measures its success in accomplishing these goals by judging whether or not the economy is at full employment and whether or not prices are stable. Not only does the FED control monetary policy by influencing credit conditions in the economy, it also supervises and regulates banking institutions to ensure the safety and soundness of the nation's banking and financial system. The FED protects the credit rights of consumers. Thirdly, the FED maintains the stability of the financial system by controlling the risk that may arise in financial markets. Fourthly, it is also the Federal Reserve System's responsibility to provide certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments system. Before Congress created the Federal Reserve System, periodic financial panics had plagued the nation. These panics had contributed to many bank failures, business bankruptcies, and general economic downturns. A particularly severe crisis in 1907 prompted Congress to establish the National Monetary Commission, which put forth proposals ...

    Read More

  • Federal Debt Research Paper

    232 Words  | 1 Pages

    The Federal Budget Deficit is the amount of money that the government loses each year by spending more than they get back in taxes. The Federal Debt is the accumilation of the federal deficit over the years. Presidents Warren G. Harding and Calvin Coolidge are the onky presidents to ever reduce the federal debt. Today the federal debt is about $21.16 trillion dollars.

    Read More

  • The American Dream of Home Ownership

    1366 Words  | 3 Pages

    dropped 10.9% causing the home market to suffer. Individuals who have subprime mortgagees to finance these less expensive homes are often times forced into foreclosure due to substantial rate changes. In affect, the economy faces acontinuing negative cycle of subprime delinquencies that result in tighter credit and lower home prices.17 A worsening of the American housing market will negatively affect the consumers confidence while at the same time worsening the American economy.18

    Read More

  • Monetary Policy

    1670 Words  | 4 Pages

    In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).

    Read More

  • The Federal Reserve System

    2337 Words  | 5 Pages

    Even before the creation of the Federal Reserve, banks were used by the public just as we use them today. Deposits were made into savings accounts. Loans were taken out to mortgage a home or finance a new business. Banknotes were issued and spent when the public borrowed from the banks. Borrowers spent these banknotes just as paper money is spent today. These bank notes were valued as money since they were backed by the promise that they would be exchanged on demand for either gold or silver.

    Read More

  • The Housing Crisis

    987 Words  | 2 Pages

    ...our weeks ago it was down to 5%. It is now currently 5.24%, which is a big jump for only four weeks. Mortgages are through banks, so that is money they are losing since it is so low right now. Credit card interest rates need to drop so mortgages can get back to where they were. It is more expensive for the people, but it would compensate for credit cards.

    Read More

  • How Factory Work Affects The Economy

    554 Words  | 2 Pages

    In the long run, this will end up being bad for the economy. The government “wants a better economy” , but with the monetary policy, that might be hard or near impossible to do. The government should stop limiting money supply and circulation in order to better our economy.

    Read More

  • Monetary Policy

    1346 Words  | 3 Pages

    Monetary policy can either be expansionary policy in which case there is a rapid increase in the total money in circulation in the economy, or contractionary policy in which case there is a slow increase or decrease in the total amount of money in circulation in the economy (Woelfel, 1994). The description of monetary policy takes the following approach; accommodative if the intention of the set interest rates is to stimulate economic growth, neutral if the intention is neither to fight inflation nor to stimulate economic growth and tight if the intention is to decrease inflation (Woelfel, 1994). These can be achieved through various tools including raising reserve requirements, increasing interest rates by fiat, and decreasing the monetary base, depending on the intended results (Woelfel, 1994).

    Read More

  • Federal Reserve System Case Study

    740 Words  | 2 Pages

    According to federalreserveeducation.org, the term "monetary policy" refers to what the Federal Reserve, the nation 's central bank, does to influence the amount of money and credit in the U.S. economy, (n d). The tools used are diverse but the main ones are:

    Read More

  • Inflation

    951 Words  | 2 Pages

    Monetary policy aims to influence the overall level of monetary demand in the economy so that it grows broadly in line with the economy's ability to produce goods and services. This stops output rising too quickly or slowly. If rates are set too low, this may encourage the build-up of inflationary pressure; if they are set too high, demand will be lower than necessary to control inflation. Changes in demand and output then impact on the labor market - employment levels and wage costs - which in turn influence producer and consumer prices. When the Fed increases the discount rate, it does not have an immediate impact on the stock market. Changes in the official Bank rate then affect the whole range of interest rates set by commercial banks, building societies and other financial institutions for their own savers and borrowers. It will influence interest rates charged for overdrafts and mortgages, as well as savings accounts. A change in the official Bank rate will also tend to affect the price of financial assets such as bonds and shares, and the exchange rate. These changes in financial markets affect consumer and business demand and in turn output. Changes in the official Bank rate take time to have their full impact on the economy and inflation. Some influences, such as those on the exchange rate, work very quickly.

    Read More

More about Federal Reserve System Research Paper

Open Document