The Federal Reserve Bank has four main mechanisms that control the money supply
In your response take the opposing view of the original post. Respond to at least two of your fellow students’ and to your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your opposing view by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
Rebecca Cline
Tuesday
May 11 at 6:18am
In 1913, the Federal Reserve Bank was established as a central bank in order to regulate the supply of money (O’Connell, 2020). The Federal Reserve Bank has four main mechanisms that control the money supply. The first is reserve requirements that are implemented in order to control the reserves that banks must maintain against their checking deposits. the reserve requirements can be increased, if the supply of money needs to be restricted, to reduce the amount of funds banks can be used to extend loans to consumers. One tool that is used by the Federal Reserve Bank to control money supply is open market operations. Open market operations the Federal Reserve Bank either buys or sells securities. The Federal Reserve Bank can also control money supply through interest rates that the Federal Reserve Bank pays on banks’ reserves. The Federal Reserve Bank pays commercial banks interest on their reserves. These rates are determined by the Federal Reserve Bank to control the supply of money (Gwartney et al., 2018).
One branch of the Federal Reserve Bank is the Federal Open Market Committee. This committee is responsible for making policy decisions concerning the purchasing and selling for financial assets (Gwartney et al., 2018). This mechanism is used to control the supply of money. The Federal Open Market Committee can decide to purchase assets that will then increase the circulation of money by writing a check against itself and “creates money out of nothing” (Gwartney et al., 2018, Section 13-6b).The Federal Reserve Bank provides steadiness in uncertain economic times. Before the creation of the Federal Reserve Bank there were several different currencies used. The Federal Reserve Bank was able to get the country to use one currency, known as the U.S. Dollar. The Federal Reserve Bank also has powers that are above elected officials and limited accountability. The Federal Reserve Bank provides regular reporting, congress does not provide oversite, and some say that it operates in secret (O’Connell, 2020).Even with the limited accountability the Federal Reserve Bank plays a “unique role as both a financial services provider to the federal government and its substantial role in shaping U.S. economic policy” (O’Connell, 2020, Section: Pros and Cons of the Federal Reserve). The Federal Reserve Bank is a necessary institution, due to the fact that they are able to ensure monetary policies are followed in order to protect the economy and customers.
Resources:Gwar
ey, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com
O\\\’Connell, B. (2020, March 4). What Is the Federal Reserve? Definition, Function and Who Owns It. TheStreet. https://www.thestreet.com/markets/what-is-federal-reserve-purpose-14723711.
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