Question

MONEY FOR NOTHING questions:

1. Did the United States ever have central bank prior to the Federal Reserve? Explain.

2. What is the "Great Moderation" of the 1990s?

3. Is the Federal Reserve public (government) or private? Explain

Answer 1

1.

Federal reserve system is the third central banking system in the history of the United States. Before Federal Reserve, there were two banks which issued currency, made loans, accepted deposits and maintained US treasury. The US government had to purchase 20% of the bank capital stock shares and majority control of the bank was in the hands of the wealthy investors who invested in the 80% of the stock shares.

2.

The Great Moderation refers to the phase of stability in the business cycle characterized by low inflation and positive economic growth. In the UK, the Great Moderation occurred in the 1990s which was due to stable average wage growth in the period. It had occurred after great volatility in the 1970s and 1980s.

3.

The Federal Reserve is independent of the government in order to isolate it from the day to day political influences. It is both private and public as it is established like a private corporation while the main purpose of the Fed is to serve the public because they exist due to the act of Congress.