Question

Describe the functions of the Federal Reserve System? What role is played by the Board of Governors?  What is the goal of monetary policy??

Answer 1

Functions of federal Reserve system:-

• Has three main functions
• To provide and maintain effective payment system.
• Supervise banking operations.
• Conduct monetary policy.
• To promote maximum Employment.
• Stable prices and long term interest rates
• It was created by the Congress.
• To provide the nation
• With more flexible monetary and financial system.

Role played by the Board of governors:-

• Also known as federal Reserve board.
• Consists of seven governors appointed by the president.
• Responsibilities of the Board of governors
• To guide monetary policy.
• To analyze domestic, Economic and financial conditions.
• It supervises the control over the financial services.
• Over sees the activities of Reserve banks .
• Board members maintain regular contact with other organizations
• Its financial accounts are audited annually.
• These accounts are also subject to audit by the general accounting office.

Goal of monetary policy:-

• Maintains stable prices.
• Crucial pre-condition for increasing Economic growth of an Economy.
• To promote Employment,
• And moderate Long term interest rates.
• Seeks to increase the size of the money supply.
• Controls either the cost of very short term borrowing or the monetary base
• To contribute to the stability of GDP.
• To maintain low unemployment.
• And to maintain Exchange rates with other currencies.