1. Define Monetary Policy 2. Tell how the Fed was created 3. Draw the pyramid 4....

1. Define Monetary Policy 2. Tell how the Fed was created 3. Draw the pyramid 4. Define all of the parts of the pyramid, tell # of members and term limits (if given) for each.

Expert Solution

Ans) 1) Monetary policy is the method by which central bank controls money supply and interest rates in the market in order to address macroeconomic objectives like inflation, deflation, growth, consumption etc.

Tools used in monetary policy are ÷ adjustments in interest rates, open market operations like sale or purchase of govt bonds, change in CRR and SLR.

2) Federal reserve bank or Fed is America's central bank. It was formed after the act was passed by Congress on 23 dec 1913.

Flow chart is as below ( I am made it horizontally , you kindly make it vertically)

Alexander Hamilton was the first proposer of idea of central banking authority >>> first bank of US charted in 1791 >>>> bill to re-charter bank failed in 1811 >>>> Second bank of US formed in 1816 >>>> Was declared unconstitutional by President Andrew Jackson in 1836 >>>> then came National Banking Act in 1863 >>>> JP Morgan convinced govt to act on central banking authority after panic of 1907 >>>> Congress established Fed in 1913.

3) Federal Open Market Committee- it consists of 7 member of board of governor + President of federal reserve bank of New York and president of 4 other federal reserve banks.

4) Chairman- is selected from board of governors and serve for term of 4 years after approval of senate.

Board of governors- also known as federal reserve board consists of 7 governors appointed by President and approved by senate. They serve for 14 yrs. Main function is to guide monetary policy action, lead the committees, monitor the activity of federal reserve bank.

Federal reserve bank- there are 12 federal reserve bank serving their respective regions. It is also called as Bankers bank. It assist other commercial banks. Is main work is to frame the policies.

Rahul Sunny answered 2 hours ago

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