Question

1. why Federal Reserve was created, 2. The organization of Federal Reserve, 3. The role of the Federal Reserve in Monetary Policy. You paper has to include references.

Answer 1

1. The US central bank is the Federal Reserve System, also referred to as the Federal Reserve or simply "the Fed." The Congress established it to provide a healthier, more efficient, and more secure monetary and financial system for the country.

2. The Board of Governors is the regional portion of the federal reserve system, also known as the Federal Reserve Board. The Board is made up of the seven Governors appointed by the President and confirmed by the Senate. Governors serve 14-year terms that are phased over time to ensure stability and continuity. The Chairman and Vice-Chairman shall be named for a period of four years and may be reappointed subject to a term limit. Under the general supervision of the Board of Governors a network of 12 Federal Reserve Banks and 24 branches make up the Federal Reserve System. Reserve Banks are the central bank's working arms.

Of the 8,039 commercial banks in the United States, nearly 38 per cent are part of the Federal Reserve System. National banks must be members; banks chartered by the State can join if they meet certain requirements. Member banks are Reserve Bank stockholders in their District and are expected to keep 3 percent of their capital as a stock in their Reserve Banks as well. The Federal Open Market Committee, or FOMC, is the body that determines monetary policy for the Fed. It is responsible for formulating a strategy aimed at promoting stable prices and economic development. To put it clearly, the FOMC manages the money supply to the economy.

3. Monetary policy in the US requires the actions and communications of the Federal Reserve to encourage full jobs, stable inflation, and reasonable long-term interest rates — the three economic objectives that Congress has directed the Federal Reserve to follow.

The Federal Reserve implements monetary policy for the nation by controlling the level of short-term interest rates and by affecting the economy's overall availability and cost of credit. Monetary policy has a direct effect on short-term interest rates; it has an indirect influence on longer-term interest rates, currency exchange rates, stock prices and other assets, and thereby income. Full sustainable employment is the highest level of jobs the economy can achieve while maintaining a steady rate of inflation.

Costs are considered stable when customers and companies do not think about rising or dropping costs while making plans, or when investing or lending for long periods of time. Long-term interest rates remain at moderate levels as markets are stable and the objectives of price stability and low long-term interest rates go together.

Reference- The Federal Reserve System- Donald R Wells