In: Economics
1. The Federal Reserve was created in response to a series of bank failures. How is the Fed able to prevent or limit bank failures and bank runs?
2. What is the financial system and what is its purpose in the economy? Please answer it within Macroeconomics class
fisrt second answer is shown
2 ] THE financial system is a system that allows transfer of money between saver and investor and borrower a financial system can operate on a global regional or firms specific level writing in financial services and system has described it as comprising a set of complete and closely financial institute and markets instrument services ,practice and transcations
according to douglas gale in comparing financial system
financial system are crucial allocation is a modern economy . they channel household saving to the corporate sector and allocation investment funds among firm they allow interpoles among the smoothing of consumptions by householders and expenditures by the firms
1] The Federal Reserve System (also known as the Federal
Reserve, and informally as the Fed) is the central banking system
of the United States. It was created on December 23, 1913, with the
enactment of the Federal Reserve Act, largely in response to a
series of financial panics, particularly a severe panic in 1907.
Over time, the roles and responsibilities of the Federal Reserve
System have expanded and its structure has evolved.Events such as
the Great Depression were major factors leading to changes in the
system.
The Congress established three key objectives for monetary
policy—maximum employment, stable prices, and moderate long-term
interest rates—in the Federal Reserve Act. The first two objectives
are sometimes referred to as the Federal Reserve's dual mandate.Its
duties have expanded over the years, and today, according to
official Federal Reserve documentation, include conducting the
nation's monetary policy, supervising and regulating banking
institutions, maintaining the stability of the financial system and
providing financial services to depository institutions, the U.S.
government, and foreign official institutions. The Fed also
conducts research into the economy and releases numerous
publications, such as the Beige Book.
The Federal Reserve System's structure is composed of the
presidentially appointed Board of Governors (or Federal Reserve
Board), the Federal Open Market Committee (FOMC), twelve regional
Federal Reserve Banks located in major cities throughout the
nation, numerous privately owned U.S. member banks and various
advisory councils. The FOMC is the committee responsible for
setting monetary policy and consists of all seven members of the
Board of Governors and the twelve regional bank presidents, though
only five bank presidents vote at any given time. The Federal
Reserve System has both private and public components, and was
designed to serve the interests of both the general public and
private bankers. The result is a structure that is considered
unique among central banks. It is also unusual in that an entity
outside of the central bank, namely the United States Department of
the Treasury, creates the currency used.According to the Board of
Governors, the Federal Reserve System "is considered an independent
central bank because its monetary policy decisions do not have to
be approved by the President or anyone else in the executive or
legislative branches of government, it does not receive funding
appropriated by the Congress, and the terms of the members of the
Board of Governors span multiple presidential and congressional
terms." Its authority is derived from statutes enacted by the U.S.
Congress and the System is subject to congressional oversight. The
members of the Board of Governors, including its chairman and
vice-chairman, are chosen by the President and confirmed by the
Senate. The government also exercises some control over the Federal
Reserve by appointing and setting the salaries of the system's
highest-level employees. Nationally chartered commercial banks are
required to hold stock in the Federal Reserve Bank of their region;
this entitles them to elect some of the members of the board of the
regional Federal Reserve Bank. Thus the Federal Reserve system has
both public and private aspects. The U.S. Government receives all
of the system's annual profits, after a statutory dividend of 6% on
member banks' capital investment is paid, and an account surplus is
maintained. In 2010, the Federal Reserve made a profit of $82
billion and transferred $79 billion to the U.S. Treasury. This was
followed at the end of 2011 with a transfer of $77 billion in
profit to the us treasury