The Federal Reserve System In The United States

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The United States Federal reserve system otherwise known as “The Fed” is a essentially a central banking system for the United States. The Fed was created in 1913 after a series of financial panics. The responsibilities of the Fed have evolved over time from major events such as the great depression and are currently evolving as world finances tread lightly on uncertain futures. (About.com, 2012)"By raising or lowering the discount rate, the Fed can promote or discourage borrowing and thus alter the amount of revenue available to banks for making loans." Changes in these rates affect the public’s purchasing power by altering the availability of bank loans and lowering borrowing costs. So for example when these rates are lowered it could lead…show more content…
(This is why people say the Fed prints money.) The Federal Reserve can restrict credit by raising interest rates and making credit more expensive. This reduces the money supply, which curbs inflation. Why is managing inflation so important? Ongoing inflation is like an insidious cancer that destroys any benefits of…show more content…
When interest rates go down it lowers prices of American goods sold abroad and raises prices for foreign goods purchased domestically. This leads to an increase of purchases for products “Made in the USA”. While there is some impact over monetary policy from overseas markets this, arguably, does not have much of an impact. While China deflated currency allows their goods to be sold here at a lower cost than US goods this has no effect on most service industries. For example healthcare which entails 15% of our annual GDP would not be affected. However the argument comes in when the TV factory shuts down and 500 people are laid off. So, while foreign markets may affect The Feds policy’s it should not have a major impact. The Federal Reserve has been a very important economic entity in the US since its inception in 1913. By controlling interest rates and the money supply it has controlled inflation and economic growth of our country. About.com. (2012, January 01). Bank reserves and the discount rate. Retrieved from
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