Why was the Federal Reserve System formed.docx - Why was...

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Why was the Federal Reserve System formed? The 1907 panic resulted in such widespread bank failures and such substantial losses to depositors that the public was finally convinced that a central bank was needed to prevent future panics. Congress wrote an elaborate system of checks and balances into the Federal Reserve Act of 1913, which created the Federal Reserve System with its twelve regional Federal Reserve banks. Should the Fed operate as an independent agency to determine national monetary policy? Subjecting the FED to more political pressures would impart an inflationary bias to monetary policy. They would be unlikely to focus on long-term objectives such as promoting a stable price level. Instead they will seek short-term solutions to problems such as high unemployment and high interest rates. The opposition thinks that control of monetary policy is too important to be left to politicians, a group that has demonstrated lack of expertise at making hard decisions on issues of great economic importance. This argument can also be stated as the

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