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answers-ch04 - Chapter 4 Functions of the Fed Questions 1...

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Chapter 4 Functions of the Fed Questions 1. Briefly describe the origin of the Federal Reserve System. ANSWER: Two attempts to establish a central bank in the 1800s had failed. In the late 1800s and early 1900s, several bank panics occurred, which encouraged another attempt. In 1913, the Federal Reserve Act was passed and specified 12 districts across the United States, as well as a city in each district where a Federal Reserve district bank was to be established. 2. Describe the functions of the Fed district banks. ANSWER: The Fed district banks facilitate operations within the banking system by clearing checks, replacing old currency, and providing loans to depository institutions in need of funds. 3. What are the main goals of the Federal Open Market Committee? How does it attempt to achieve these goals? ANSWER: The main goals of the FOMC are to promote high employment, economic growth, and price stability. 4. Explain how the Fed increases the money supply through open market operations.
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