Question

1. Discuss the functions of a nation’s central bank (i.e. FED) as identified in your class notes and videos. Also discuss how these functions evolved over time in the U.S. and what banking eras they originated. Which function is most important and why?

Answer 1

Functions of the FED

1. Management of inflation- Fed works to keep the prices stable and maintain a 2% inflation target through monetary policies and open market operations

2. Banking services to other banks i.e.domestic or foreign banks and US government

3. It regulates and supervises nation's bank i. e. the domestic banking companies or foreign banks operating in the nation

4 maintains stability in the financial markets

After the great depression, the banking act 1935 was passed, this act established the open market operations under its monetary policy  and the federal reservFereform act of 1977, which stated price stability as national goal

The financial crisis of 2007-2008 passed the dodd-frank act consumer protection act in 2010 which expanded it's supervisory responsibilities.

The most critical function of Federal Bank is to maintain the inflation because when their is risk of inflation it manages the credit and long term interest rates and when there is no risk of inflation it lowers the interest rate so that the demand can be expanded which leads to increase in production hence increase in employment