Chapter 7 - Chapter 7 The Fed The two aspects of economic...

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Chapter 7: The Fed The two aspects of economic policy in the US: 1. Fiscal policy – taxation and government spending – Executive and Congress 2. Monetary policy – interest rates, money supply and credit – the Federal Reserve System (generally called “Central Bank” in most other nations) Prior to the establishment of the Federal Reserve System (the” Fed") the US tried to create central banks: the First Bank of the Unit4d States was disbanded in 1811, and the Second Bank of the United Sates was disbanded in 1836. The Fed was created in 1913 by an act of Congress (as opposed to an institution created in the Constitution), has the most unusual structure in the world. This structure reflects both the American fear and distrust of centralized power and the “sovereignty” of states. A central bank can act as a lender of last resource. Its absence in the US was accompanied by bank panics and financial disorder every couple of decades or so. However, since the creation of the Fed, we have still experienced serious economic problems associated with financial turmoil every couple of decades or so: the early 1990s dotcom stock market bubble; the mid-1980s collapse of Savings & Loans which led to their rescue (at a cost of around $200-bill in today’s dollars); the inflation of late 1970s (rising to over 13% in 1979). Structure:
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Chapter 7 - Chapter 7 The Fed The two aspects of economic...

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