Question

Explain the managing of inflation operation of the Federal Reserve System.

Explain the supervising of the bank system operation of the Federal Reserve System.

Explain the maintaining stability operation of the Federal Reserve System.

Explain the providing banking services operation of the Federal Reserve System.

Answer 1

Whenever there is an increase in spending in the state or whenever there is an increase in the money supply it will lead to inflation.The government can control the inflation by adopting a contractionary monetary policy.Government can also use wages and price to control the inflation but it may lead to unemployment and recession. Government adopts a contractionary monetary policy by increasing the interest rates.Thus the people will borrow less money from the banks and the money supply will be reduced.In case of U.S the Federal reserve will increase Fed funds rate the rate at which the banks borrow money from the government.

Federal reserve system supervises the activities of financial institutions and banks.Fed has both supervisory and regulatory authority.While performing the supervisory and regulatory functions it will ensure the safety and soundness of the banking system It will also ensure the stability of the financial institutions.

Federal reserve system is the central bank of US. Federal reserve system maintains the stability function with the help of monetary policy.When ever there is an inflation in the economy federal reserve will adopt a contractionary monetary policy and when ever there is a deflation in the economy Fed reserve will adopt an expansionary monetary policy to increase the money supply .The Fed also have introduced a number of temporary emergency lending programs to provide funding to non bank financial institutions.

Federal reserve the central bank of U.S provides various financial services to various financial institutions including banks.The reserve requirement of the banks are being set by the Federal Reserve Board of governors.Federal reserve board of governors will set the discount rates also.The main monetary policy making body of the federal reserve is Federal Open Market Committee (FOMC). The buying and selling of securities is monitored by FOMC