wwwww.docx - The Federal Reserve System In most countries of the world the job of manipulating the supply of money belongs to the\"central bank In most

wwwww.docx - The Federal Reserve System In most countries...

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The Federal Reserve System In most countries of the world, the job of manipulating the supply of money belongs to the "central bank". In most countries, the central bank is a single bank. In the U.S., however, the central bank is 12 institutions, closely tied together and collectively called the Federal Reserve System. Each of the 12 banks has branches in key cities in its district. The 12 banks act effectively in unison on major policy issues, with control of major policy decisions resting with the Board of Governors and the Federal Open Market Committee. The current Chairman of the Federal Reserve System is Ben Bernanke. the Functions of a Central Bank • Banker's bank • Service functions for commercial banks • Bank for the government • Manages transactions with other countries • Lender of last resort • Maintain banking system stability Many of the key policy decisions of the Federal Reserve are actually made by its Federal Open Market Committee (FOMC), which consists of the seven members of the Board of Governors; the president of the New York Federal Reserve Bank; and four other presidents of Federal Reserve Banks, who serve on the committee on a rotating basis. Three Major Tools of the Fed • Open market operations • Change reserve requirements • Change the discount rate Open market operations involve the purchase and sale of government bonds by the Federal Reserve System. Open market operations are the most important method the Fed uses to influences the money supply. When the Fed buys bonds, it pays the seller of the bonds by a check written on one of the 12 Federal Reserve banks. The person receiving the check will likely deposit it in his or her bank account, which will increase the money supply in the banking system. The commercial bank, in return for crediting
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