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Case Study: The Federal Reserve System

Decent Essays
What is the Fed? Short for The Federal Reserve System, the Fed is the central bank of the United States of America. Even though there are numerous banks in this country, the Fed is highest ranking system that controls and monitors the money of this nation. The president nominates the leaders of this system, who are called the Board of Governors. They are called this because the group consists of seven governors. After the president nominates them, the Senate has to approve of his choice. It was founded in 1913 by Congress for various reasons. One of the motives behind establish such a system is to create a general pool of finance for the smaller banks, such as Bank of America and Wells Fargo. When these banks are in need of money, they…show more content…
For instance, the Presidential Cabinet is a perfect example of the country being divided into subtopics, such as agriculture or labor. The Federal Reserve System, on the other hand, functions to benefit the overall finances of the country. As mentioned before, banks across the United States can borrow money from the Fed in order to keep their businesses thriving. The Fed oversees all of these transactions and commercial banks. Since it acts of the entire government’s bank, it has other functions. The primary role is to hold money for the nation’s banks; however, it also can sell bonds and treasury bills. As a result, the chairman meets periodically with the Secretary of the Treasury to ensure proper payments. The Fed, in addition, issues and controls the circulation of currency, which is another reason why they meet with the U.S. Treasury. In summary, the Fed has many functions that help keep the United State’s fiscal situations under…show more content…
By definition, monetary policy is the control of the supply of money and the cost of borrowing money according to the needs of the economy. This basically means that the government can make changes to how money is being given and taken in order to make best of the current economy. The main body that does this within the fed is The Federal Open Market Committee. They can either encourage or discourage various business practices within the nation. For example, the Fed will increase the supply of money if they wish to have lower interest rates. This will encourage entrepreneurs to establish businesses since they do not have to pay as much interest. The opposite phenomenon will happen when the Fed wants to increase interest rates. Business will be forced to use more of their earnings to pay interest on their loans, which were given by the Fed. This interest is connected to the discount rate, the amount the Fed charges banks for loans. Thus, the economy will be stimulated and business practices will open when this rate is lowered (vice versa). One can conclude that the Fed is a significant system of the government that can influence how businesses will react to the changing economy.

Expected Use of Financial Institutions Below is a list of financial institutions the author expects to use in the next five years and why. Keep in mind that he
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