Question

In: Economics

Discuss the functions of a nation’s central bank (i.e. FED) as identified. Also discuss how these...

Discuss the functions of a nation’s central bank (i.e. FED) as identified. Also discuss how these functions evolved over time in the U.S. and what banking eras they originated.

Solutions

Expert Solution

Almost all countries have central bank to maintain financial stability in country. Following are generally accepted functions of central banks:

  • Issue of new currency or Printing of notes.
  • Price stability through the use of monetary policy.
  • Regulating commercial and financial institutions.
  • Acting like lender of resort to commercial banks.
  • Maintaining foreign exchange stability.
  • Conducting researches from time to time.

Fed Reserve is US central Bank, it was conceived back in 1790 and it has evolved massively over the period of time. Central bank played critical role in averting bank run in 1906-07. Further, Fed was not active enough during the 1929 economic depression. thus, crisis became more deep. After crisis, role of Fed grew up outward. Now Fed began to take part in economy actively. Now Fed has twin objectives of full employment and price stability.

Fed is autonomous body and its members are free from political interference. Thus, Fed has actively tackled Financial crisis of 2008. thus, Fed has evolved hugely since its inception.


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