Question

In: Economics

   Identify the goals and describe the structure of the Federal Reserve System.

   Identify the goals and describe the structure of the Federal Reserve System.

Solutions

Expert Solution

Step 1- Goals of the Federal Reserve System :
It is the central bank of the United States. Congress created it for providing the nation with a safer, more flexible and more stable monetary and financial system.
Conducting monetary policy is the main economic aim of the Federal Reserve System.
Three key objectives were established by the U.S. Congress for monetary policy in the Federal Reserve Act: maximum employment, stable prices and long term moderate interest rates. Maximum employment and stable prices are a dual mandate of the Federal Reserve. Research is conducted in the economy and providing numerous publications.
Step 2- Structure of the Federal Reserve System :
It has a structure of two parts -
i). Central authority/ Board of Governors in Washington D.C.
ii). 12 Federal Reserve Banks are located throughout the country which is called a Decentralized network.
FOMS (Federal Open Market Committee) sets the Monetary policy which considers members of the Board of Governors and Reserve Bank's presidents.
Board of Governors:
The Federal Reserve System is overseen by the board and the board is an independent governmental agency. This has seven members on the board and its staff include an independent government agency that is charged with overseeing the Federal Reserve System. President appoints these boards of members and the Senate confirms it. The term of 14 years is served staggered that expires in every even number year. The board of members is appointed in order to shield them from the pressure of politics for the long term. A chairman and vice-chairman of the board are designated by the President and both of them serve for a term of four years. These appointments are subjected to the approval of the Senate and might be renewed.
Federal Reserve Banks:
These 12 banks carry out day to day operations of the system. The Reserve Banks/district banks are non-governmental banks and their setup is similar to the set up of private corporations but they are operated in the interest of the public. Branches of Reserve Bank are located in the other 24 cities.
The Reserve Banks and branches of Reserve Bank have a board of directors that considers representatives of the commercial banks and those are also the members of the Federal Reserve System and individuals who appear for each District's interest of the business. Labor, consumer, non-profit sectors might also be included in the board. The board of directors appoints President of each Bank and the Board of Governors approve it which protects against the influence of politics.


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