Question

1- What is the Federal Reserve’s dual mandate established under Congress? Where do we currently stand in relation to that mandate? Explain the three main ways the Fed implements monetary policy. What method have they utilized most recently?

2-Explain the development of the FDIC, under what act was is created and why? Discuss how an individual might maximize their FDIC coverage. What changes did the FDIC implement after the recent financial crisis?

Answer 1

1.

a) The main objective of the Federal Reserve is to maintain a healthy economy. The Federal Reserve System has been assign a double mandate: it must try to reach the economic goals of price stability and maximum employment. To do so, it administers the money supply system and credits of the nation, in other words, it conducts the monetary policy of the nation.

Maintain price stability: to achieve this goal, the FED must ensure that the economy does not experience high or variable inflation or deflation, in other words, it must ensure that the price level does not increase or decrease too much.

Full employment: The second part of the double blanket of the FED is full employment. Full employment can be defined as the level at which cyclical unemployment is eliminated, which arises during economic crises. The FED can use the monetary tools to stimulate the economy when it begins to weaken.

b) According to the Federal Reserve average unemployment in 2017 in the United States was 4.4%. According to the FED, this rate remains under the natural level of unemployment. On the other hand, the avarage interest rates in 2017 was 1.5%, while inflation was 2.1%.

c)

To influence the price level and unemployment the FED uses certain monetary tools that help stimulate the economy. The Federal Reserve can make decisions about:

• The amount of money circulating in the economy
• The reserve level of banks
• The level of the interest rate

The method that the Federal Reserve has used most recently is rasing the interest rates. In december, 2017 the FED raised interest rates by 0.25.