The Federal Reserve

The Federal Reserve

1. Evaluate the role and the effectiveness of the Federal Reserve in stabilizing the current economy.

The creation of Federal Reserve and knowing about its role in the monetary policy will help us to understand why the US government feels that it is necessary to have the decision in the economic growth of the nation. Different factors provide the government a long term forecasts about where the economy is going towards growth at present time or how it may be in the future too. Consequently, analyzing the previous history of growth can provide the full knowledge which allows the adjustments which may be needed for the future growth of the economy. With the help of monetary policy Government move the economy in the direction towards the growth but sometimes the changes in this policy can also result in high inflation. The Federal Reserve has some big responsibilities and regulatory powers over the banking system and financial markets in the U.S. Consequently, one of its major primary roles is to act as the lender of the last resort to the banking system. It also conducts the monetary policy through its ability to set the interest rates and to adjust the overall supply of money as well as credit. This Federal Reserve may influence the economic growth and inflation. However, the major tasks of the Federal Reserve are:

 Controlling the amount of currency made and destroyed.

 Supervise and regulate the banks.

 Maintain the strong payments system.

Moreover, it also implements monetary policy by setting the discount rate and reserve ratio. The Federal Reserve also involves the economic education. One of the major goals of Federal Reserve is to minimize the risk in banking system. One of the most important duties of the Federal Reserve is the maintenance of monetary and credit conditions in favor of the business activity in the fields like agriculture and industry. The Federal Reserve use monetary policy to influence the economy of the United States. According to Investopedia (2011):

Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply. While the Fed's mission of "lender of last resort" is still important, the Fed's role in managing the economy has expanded since its origin.

2. Determine which economic indicators the Federal Reserve should analyze so it can better stabilize this particular economy.

Yield curve is the economic indicator which the Federal Reserve should analyze so as to stabilize the economy. The Monetary policy plays the