Unformatted text preview: Federal Reserve, Banking, and Inflation Federal Reserve, Banking, and Inflation Economic Theory ECO/205 June 28, 2009 Why was the Federal Reserve Why was the Federal Reserve Created?
To furnish elastic currency that meets the economic needs of the nation. To serve as a last resort of defense for the banking systems of the nation. Establish a more effective system to supervise banks. Improve the efficiency of the national payment mechanism What are its essential functions? What are its essential functions?
Implementation of Monetary Policy Providing payment services for the depositories Serving as a bank for the Federal Government Who are the decision makers of the Federal Who are the decision makers of the Federal Reserve? How do these people obtain these positions? The decision makers of the Federal Reserve are The Board of Governors. These people obtain these positions by being appointed by the president and confirmed by the Senate. How does the Federal Reserve How does the Federal Reserve control the monetary system?
Carrying out the country’s monetary policy Influencing money and credit conditions in the economy Promote the goals of high employment Promote sustainable growth and stable prices How do banks increase the How do banks increase the money supply?
Open market operations U.S. Government securities IOUs of the Federal Government How is inflation measured? How is inflation measured?
By surveying consumers Cost of goods index Cost of living index Consumer price index Producer price index What are the causes of inflation? What are the causes of inflation?
Demand Supply Are natural disasters causes of inflation or Are natural disasters causes of inflation or deflation? Where might the public see the evidence? Natural disasters cause inflation Increase in price of products What are the costs of inflation? What are the costs of inflation?
Pricing contracts Labor contracts Energy prices Why is inflation so widely feared? Why is inflation so widely feared?
Inflation erodes the value of money. Inflation works like a stealth tax. Money plays a vital role in allocating resources in an economy. References References
Federal Reserve Education. (n.d.) The federal reserve structure tour. Retrieved June 28, 2009, from http://www.federalreserveeducation.com/fed101 html/structure/tour/tour.htm Piger, J. M. (2005, November). Are inflation expectations rising from the ashes? Retrieved June 28, 2009, fromhttp://research.stlouisfed.org/ publications/mt/20051101/cover.pdf Raham, Y. A. (2004). The federal reserve system of the United States. Raham, Y. A. (2004). The federal reserve system of the United States. Retrieved June 28, 2009, from http://www.laribabook/chapter5.htm ...
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