Federal Reserve Paper
August 22, 2010
Federal Reserve Paper
The Federal Reserve System (Feds) in the Central Bank, essentially it is a bank’s bank. Its main function is to implement policies to control the nation’s money supply. Because of the economic recession, the Feds reacted with the expansionary monetary policy. Expansionary monetary policy is the Feds increases the money supply. The current year’s effects of expansionary monetary policy are documented by the Federal Reserve Board of Governors within the Monetary Policy report to Congress. Also, if the economy were in an inflationary gap then the Feds would react with contractionary monetary policy. Contractionary monetary ...view middle of the document...
the money supply (contractionary monetary policy). In addition, the Feds mandates that member banks hold a certain fraction of its checkable deposits in the reserve form. The fraction of checkable deposits that must be hold is called the required reserve ratio (r) and the dollar amount of deposits that must be held in reserved form is called required reserves. Moreover, goals of monetary policy, specifically to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. Financial stability is an important prerequisite for achieving those goals (What's so Important about our Gross Domestic Policy, 2009).
In the July 21, 2010 Monetary Policy Report to Congress, the Feds had an outlined that directed the current Reserve (2010), Financial markets, although volatile, generally supported economic growth in the first half of 2010. (Part 1 Overview: Monetary Policy & Economic Outlook 2010, para 2). Presumably, the slight but positive change has not been significant enough in the first half of this year. However, the committee does recognize that economic activity has expanded in 2010 with an increase in the GDP, modest increase in payroll drop in inflation. Alas, employment remains low and, it slightly lower then in 2009. Because of the minimal change in the economic activity, the Feds expect the interest rates to stay low for an exceptionally long time.
One of the policy actions that the Federal Reserves took was the positive was the homebuyer’s tax credit. As stated in the July 21, 2010 Monetary Policy Report to Congress, Home sales surged in the spring, but these increases likely were driven by purchases that were pulled forward to qualify for the...