The Federal Reserve...
Discouraging Your Business Practices?
What is the Federal Reserve System?
The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. The Fed's mandate is "to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates." Today, the Federal Reserve's responsibilities fall into four general areas. Their first responsibility is conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. Second, they supervise and regulate banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers. Third, they maintain the stability of the financial system and contain systemic risk that may arise in financial markets. Their last responsibility is to provide certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems.
How Does the Federal Reserve Use Its Powers Towards Business Practices?
The Federal Reserve can use its powers to manipulate business activity by raising or lowering the money supply. This is one of its main responsibilities. When the Fed wants more business activity to happen, it raises the money supply. It can do this in a variety of ways. The two most common are by lowering interest rates or by buying government securities. If the Fed lowers interest rates, it becomes easier and cheaper for companies to borrow money. Therefore, they borrow and spend more. This increases the level of business activity. If the Fed buys government securities from banks, it is giving them money that they did not have before. The banks will want to lend that money, again, more lending means more business activity. If the Fed thinks that there is too much business activity (which means that it is worried that excessive inflation will occur) it will take the opposite steps. It will raise interest rates and/or it will sell government bonds. This will take money out of the economy and make it harder for banks and people to borrow.
My Future Plan
"Current FAQsInforming the Public about the Federal Reserve." FRB: What Is the Purpose of the Federal Reserve System? N.p., n.d. Web. 24 Apr. 2015.
"How Can the Fed Use Its Powers to Encourage or Discourage Business Activity? - Homework Help - ENotes.com." Enotes.com. Enotes.com, n.d. Web. 24 Apr. 2015.
"Types Of Financial Institutions And Their Roles - Complete Guide To Corporate Finance | Investopedia." Investopedia. N.p., 28 Mar. 2012. Web. 26 Apr. 2015.
"5 Pros and Cons of Credit Unions | Bankrate.com." 5 Pros and Cons of Credit Unions | Bankrate.com. N.p., n.d. Web. 26 Apr. 2015.