Monetary Policy

Money is generally created through banks. Despite what many people think around 97% of money is created through banks, whereas, only 3% of money is created by the government. the way banks create this money is through bank deposits. The way this works is people deposit money into banks and then the banks give out that money in the form of loans which brings money back into the banks to continue to loan out to more people. Banks charge interest when giving out loans which requires the person to pay a certain percentage for allowing people to use their money which creates money and circulates money throughout the economy. It is basically a cycle that brings in money; people borrow money and then have to pay it back plus some interest, bringing …show more content…
The federal bank was created a little over a hundred years ago in hope to help the nation stay financially secure. The federal reserve is overseen by 7 governors. They basically oversee and run the federal reserve making sure that the economy is staying stable nationally and internationally. The federal reserve has three main functions; monetary policy, banking supervision, and financial services. Monetary policy is how the federal reserve controls inflation. This is through interest rates, bonds, and changing the amount of money in banks. Banking supervision just refers to the federal bank overlooking all of the other banks. They do this to help keep the nation financially sound and making sure that the banks are keeping in check and not getting out of hand with loans or doing anything that would hurt the country as a whole.. The financial services is mostly financial aid for the government and overseeing the nation's spendings and payments. This is looked at nationally and internationally to keep a comparison of our country's economic standing compared to the …show more content…
This led people who didn’t have the money, jobs, or incentives in previous years to want to become homeowners to become homeowners. Banks were excited about so many people wanting to come to their banks for loaned money that they were more than willing to loan out more than they had the means to do. Credit was easy to come by which created a swift rise in the prices of houses. . The federal reserve kept lowering their interest rate to 1%. Everyone was investing because the investment rate was so low but little did everyone know that a crash was coming. Suddenly no more people were interested in new homes and the value of the housing market started to decrease. Many subprime bank lenders were forced to file for bankruptcy. The government decided they had to get involved when Bear Stearns one of the biggest investment firms in the U.S tanked. Thousands of people went down with Bear Stearns there shares had gone from being 30 dollars per stock to almost nothing. However, the government decided to bail them out along with a few others. Economists differ on the question of whether it was right or wrong for the government to come in and bail them out. Some think it saved Wall Street from tanking and others think it just gave businesses the idea that if they fail the government will save