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Macroeconomic Impact Of The Federal Reserve Bank. Running Head: Macro Impact
of The Federal Reserve Bank Macro Impact of The Federal ...
... Phoenix MBA/501 February 2008 Macroeconomic Impact on Business ... money is created in
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was created 1913 with the ... which the government, central bank or monetary ...
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By controlling the money supply the Federal Reserve has an impact on the ...
Submitted by bhs5426 on April 7, 2008
Category: Business
Words: 1694 | Pages: 7
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Running Head: Macro Impact of The Federal Reserve Bank
Macro Impact of The Federal Reserve Bank
The University of Phoenix
Abstract
The federal government has empowered its central bank, The Federal Reserve, with the ability to influence the amount of money available to the U. S. economy as a means to regulate unemployment, inflation, interest rates and gross domestic product.
Macro Impact of The Federal Reserve Bank
Monetary policy can influence the economy and provide much needed assistance to improve a declining economy or reduce possible inflation increases in an over stimulated economy. The Federal Reserve has the ability to make money and to reduce the amount of money in circulation. When the Federal Reserve decides that it needs to assist declining economy or rapidly rising interest rates, the Federal Reserve has three tools for controlling the supply of money at its disposal.
First, the Federal Reserve can buy or sell securities. If the situation dictates that the money supply needs to be increased, the Federal Reserve will purchase government bonds from commercial banks or the public. By doing so, the Federal Reserve increases the money available either by increasing banks lending power or increasing the amount of money to the public entity that owned the security (McConnell-Brue, 2004, p. 270). The Federal Reserve purchases bonds from commercial banks, those banks give up part of their securities holdings in exchange for the Federal Reserve paying for the securities. The payment increases the reserves of the commercial banks by the amount of the purchase. The results of purchasing from the public are similar; the Federal Reserve pays a particular person or entity for a portion of its holdings with a Federal Reserve check. The entity deposits the check into its commercial bank. The commercial bank then sends that...
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