Federal Reserve Paper Eco 212

Federal Reserve Paper

ECO 212

November 19, 2012

Peter Stewart

Federal Reserve Paper

Introduction

Within the walls of the United States of America we have what is called a central bank, which is also known as The Federal Reserve System. The Federal Reserve System is a powerful entity that was signed into law on December 23, 1913 by President Woodrow Wilson to be the “Bank of last resort” for financial institutions to go to in their time of need (Lecture, November 12, 2012). Since 1913, there have been many changes with the U.S. economy that has required the Federal Reserve to step in to “save” banks, government matters, and many other items. Within this document, many factors pertaining to the Federal Reserves will be discussed to include how they manage our money, the direction of U.S. monetary policies and the types of policies, and the effects on the economies production and employment.

Managing Nation’s Monetary Policy

The Federal Reserve utilizes three monetary policy tools known as open market operations, discount policy, and reserve requirements to assist with managing the nation’s monetary policy (Hubbard & O’Brien, 2013). Federal Open Market Committee (FOMC) is responsible for meeting and discussing the current monetary policy and they are the individuals responsible for open market operations as well as overseeing monies in the U.S. (Hubbard & O’Brien, 2013). So decisions will not be biased, the FOMC is compiled of twelve members, appointed by the President of the United States and Senate, who have the ability to vote on items that are presented to their “table”. Within the open market operation, the Feds have the ability to purchase and sell US Treasury bonds to stimulate the amount of currency that is available. In all actuality, the Feds do not have anyone to answer too; they have the ability to make decisions regarding monetary matters and share them with the government versus being forced to share each move they make with the...