The Federal Reserve Essay

1042 Words Nov 11th, 2011 5 Pages
The Federal Reserve
University of Phoenix

The Federal Reserve
The Federal Reserve System is the central bank of the United States. The purpose of the Fed is to control the United States economy by implementing policies to regulate interest rates and the money supply. To understand better how the Fed system works, we have to understand the purpose of money and its function, and explained how the central bank manages the monetary system. Summarize the stated direction of recent monetary policy to realize why the fed makes such decisions as well as list at least one policy that the Fed took to confirm that direction, and as a final point explain the impact of monetary policies on economic production and employment.
“Money is the set of
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“The Fed acts as a money manager because money does not manage itself” (Federal Reserve, 2009).
During the past two years the United States economy went into a sharp contractionary stage. As a result, “the economic activity slowed down, the labor market conditions worsened, strains in financial market prolong, and pressure on financial institutions just got even worse”(Federal Reserve, 2009).All these conditions are directly link to other areas. For example, the household sector went into a crisis period, houses dropped in value, and many people could not afford to pay their mortgages. As a result banks decrease lending money to households and business, this decrease led banks to suffer also the consequences. Equity prices of banks and insurance companies fell reporting large losses. In addition to all these, the unemployment rates peak up causing wages and salary incomes of households to fell. The economy as whole became instable, and exactly at this point, the Fed decided to implements policies. “Policies led to a significant improvement in our economy in response to monetary easing, additional fiscal stimulus, relative low energy prices, and due to an increase availability of credit” (Federal Reserve, 2009).
As a result of the contraction period the Fed implemented new monetary policies in hope to stabilize the economy. A monetary policy is defined as the future path of policy that the

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