Question

What economic conditions led to the establishment of the Fed in 1913 Why was the Fed designed to be a decentralized? What is the role of interest rates in the economy and explain how interest rate changes can increase of decrease spending in the economy.

Answer 1

National currency act was passed to finance civil war but these were liquidating the funds with the treasury bonds making the currency of the nation very liquid. Any crisis would have caused extensive downfall in the economy. There was a need for a stronger law.

fedwasas an act, which only had the power to print money and later on got the power on discount rates and fed fund rate. Because of the set interest rates, it was possible for the fed to increase credits and less liquidity. They were able to control the credit level and the adequate base of money in the exonomy which brought it to a stagnant stage.

The interest rates are very prominent part of the economy, the costof borrowing, the return on savings, and important component of the total return of many investments are determined with the help of interest rates.

Changes in interest rates can hamper the disposable income of the citizens, more the interest rate more will be the savings in the bank, the disposable income would be less with the citizens so the spendings will be less. And vice bersa