Question

1. Describe the structure of the Federal Reserve System and why it is so important for the stability of the United States’ economy.
   
   

2. What is the difference between a commercial and an investment bank?
   
   

3. List and briefly explain the 3 functions of the Federal Reserve System.
   
   

4. How does the Fed perform its functions? (i.e. what are the three policy tools that the Fed uses?) Explain each briefly.
   
   

5. If the Fed would like to LOWER the interest rate, what three actions could they take?
   
   If the Fed would like to RAISE the interest rate, what three actions could they take?
   

6. Draw a correctly labeled money market graph and show what happens (a shift) when the Federal Reserve decides that they would like to LOWER the interest rate and stimulate spending.
   
   

List the 4 factors that shift the Money Demand curve. (just list - but please review what shifts the curve either way).

Answer 1

Answer-1)

The structure of the Federal Reserve System consists of three main bodies- Board Federal Open Market Committee (FOMC), of Governors; and twelve Federal Reserve Banks (FRBs)

-- Federal Reserve Board of Governors: It acts as agency of the federal government who is directly accountable and reporting to the Congress, oversees the twelve Reserve Banks, and also gives general guidance for the System.

-- Federal Reserve Banks: It is the central banking system of America and a regional bank of the Federal Reserve System. It performs with the board for the commercial bank's supervision and the policy implementation.

-- Federal Open Market Committee: It is termed to be the Fed's chief body for monetary policy as it oversees the open market operations

The structure is significant for the stability of the U.S. economy. It influences the supply of money and credit; serving as a fiscal and banking agent for the U.S. government; supervision as well as regulation of the financial institutions; and supplying services of payments to the public through depository institutions such as banks, credit unions, and loans and savings. The services payment includes issuing, transferring, and redemption of the U.S. government securities, processing and clearing checks, and transfer of funds. It conduct the monetary policy for U.S. economy for the stability of activities in economy

As per policy we have to answer first question