The Pros And Uses Of The Federal Reserve

The Federal Reserve
The Federal Reserve or the FED is the central banking system in the United States. It was created in 1913 under president Wilson, with the purpose of controlling the stability of the financial system. The monetary policy is the course of action that the FED takes to ensure a stable economy in the United States.
In this paper I will explain which of the monetary tools available to the Federal Reserve are most often used and the reasons for that. I will also describe how expansionary activated conducted by the Federal Reserve impact credit avilaiblilty, the money supply, interest rates and security prices, and to conclude I will show the result of the transactions in the form of a balance sheet supposing the Federal Reserve

Open market operations are performed under the direction of the Federal Open Market Committee (FOMC) and is the trading of securities with primary dealers. The discount rate is the interest rate that the Federal Reserve sets for lending to other banks, and the reserve requirement is the minimum amount of money a bank must have in the vault for deposit withdrawls. Of these three tools, the Federal Reserve primarily used the open market operations because it is the most flexible monetary policy tool and it allows the FED to influence the federal funds rate, which is the rate that banks borrow from each other. Open market operations are the quickest, most effective way to influence the economy. A simple breakdows is this; the FED buys securities from banks which injects money into the banks allowing them to loan more out. The injection of money lowers the interest rates, making it easier to obtain credit which increases spending and the economic activity grows. On the reverse, if the FED sells the securities back to the banks, I takes the money out of the system which raises interest rates, reducing economic activity. The direct discount rate often followed by other interest rates, therefore, if drastic changes to the direct discount rate were made, it would mean that interest rates would follow, which could negatively