Question

1. The FED was created in 1913, since then its mission hasn’t changed. Why do you think that is? Do you think it should change after so much time has passed?
2. How does changes in the money supply impact prices, as well and periods of recession or inflation?
3. Does a paper check have any value? Explain how this process work – the “movement” of the money.

Answer 1

1.FED is responsible for Financial Monetary controlling in order to counter adverse economic situations.FED has got different tools to control to several economic scenarios.It is a central bank which is used to adjust interest rates, Open market operations to deal with financial liquidity in the economy.

It's mission is to keep american economy on the right track but it is more of reactive in nature. With changing scenarios and Globalisation leading all the way, FED is needed to be proactive instead of reactive.It should design it's policies in such a way that it can predict an economic event and be prepared for measured response to counter it rather than acting only after the event has passed and doing damage control

2.FED changes rates to counter both inflation and recession as it increase rates to control demand and vice versa .It also uses open market operations to control liquidity

3.Yes only some paper check have value are considered as cash equivalent.Many merchants refuse money by personal checks. The movement of money is a method of transferring money from persons to persons to fulfill various demands.This movement of money increases the overall liquidity in the system.