How The Fed Works
How the Fed Works
by Lee Ann Obringer
Federal Reserve building, Washington, D.C.
One of the more mysterious areas of the economy is the role of the Fed. Formally known as the Federal Reserve, the Fed is the gatekeeper of the U.S. economy. It is the central bank of the United States -- it is the bank of banks and the bank of the U.S. government. The Fed regulates financial institutions, manages the nation's money and influences the economy. By raising and lowering interest rates, creating money and using a few other tricks, the Fed can either stimulate or slow down the economy. This manipulation helps maintain low inflation, high employment rates, and manufacturing output.
In this article, we'll visit the mystical world of the Fed and talk about terms like monetary policy, discount rates, and open market operation. We'll find out just what kinds of tasks fill Ben S. Bernanke's day, and see how his and the Federal Reserve Board's decisions affect our everyday lives. Related Content:
Explanations:
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Why do we need the Fed?
Sometimes, in order to understand why you need something, it helps to find out what it was like before that "something" was created. Before the Federal Reserve was created in 1913, there were over 30,000 different currencies floating around in the United States. Currency could be issued by almost anyone -- even drug stores issued their own notes. There were many problems that stemmed from this, including the fact that some currencies were worth more than others. Some currencies were backed by silver or gold, and others by government bonds. There were even times when banks didn't have enough money to honor...
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