Roles of the Fed in Our Economy

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Roles of the Fed in our Economy Candice Singleton ECO: Principle of Macroeconomics Instructor: Alice Sineath April 30, 2012 The Fed is the central bank of the United States. They are a non-profit institution that serves the overall welfare of the public. The Fed has several functions that they have to execute. The Fed’s have control over the money supply and the authority to move overall demand for goods and service, how? which is a lot of power (Mankiw, 2007). Some of the functions are clearing interbank payments, regulating banking system, and assisting banks in a difficult financial position (Kelly, 2006). They also supervise exchange rates and the nation’s foreign exchange (Kelly, 2006). Clearing interbank payment means the Feds can allow other banks to move money around virtually immediately. The banks just have to request a money transfer and funds can move electricity from computer account to another (Kelly, 2006). When an economy is in recession this means that there are lesser jobs and income for many families has decline (Mankiw, 2007). What we must understand as well is that they can fix every problem at a time sometimes we have to be patient. The Fed can also raise interest rates which is called tight monetary and lower them (easy monetary policy). They would lower them to increase spending and raise them to decrease spending. The Fed can never run out of money or go bankrupt. They’re interest is to prevent catastrophic banking panics. They lend money to other financial institution and commercial banks. In a recession the best they can do to help the economy is lower the interest rates. Also tax cuts balance together with monetary expansion which will get the economy going again in a recession. This will increase the budget deficit but it is necessary. This will raise demand and service which can

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