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Question 1. Functions of the Federal Reserve System and how they could potentially impact the U.S. economy. Question 2. How those functions may personally impact any U.S. Citizen. Please use the class
Question 1. Functions of the Federal Reserve System and how they could potentially impact the U.S. economy.
Question 2. How those functions may personally impact any U.S. Citizen.
Please use the class video link as the reference.
Question 1. Functions of the Federal Reserve System and how they could potentially impact the U.S. economy.
Student participation includes the following attributes: Comments show evidence of a thorough reading and analysis of the material(s) -- this means theinclusion of references Points are relevant to the discussion in terms of increasing everyone’s understanding and arenot merely a regurgitation of the readings. Care is taken to distinguish among different kinds of information; i.e. facts, opinions,assumptions, or inferences. There is a willingness to test new ideas rather than remain cautious and safe. Submissions utilize correct word usage, spelling, and punctuation.
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Question 1. Functions of the Federal Reserve System and how they could potentially impact the U.S. economy.
A primary function of the Federal Reserve is to control monetary policy. The Fed dictates the amount of money circulating in the U.S economy to maintain stable prices and favorable interest rates (TD Ameritrade, 2018). A key purpose of monetary policy in the U.S is to ensure unemployment and inflation are in check. A vital tool that the Fed uses to control the economy is the Federal Funds Rate which is the rate banks use when they borrow from each other. If the Fed wants to increase spending in the economy, the key is to reduce the Federal Funds Rate. The consequence is that there will be increased spending and investing in the economy, creating more job opportunities.
Another function of the Fed is to ensure the economy is stable. The Fed ensures that the economy is healthy and growing at a steady pace (TD Ameritrade, 2018). For instance, if there is a high inflation rate in the country, meaning the economy is growing rapidly, the Fed can use its influence. The Fed will increase the Federal Funds Rate which will increase the cost of borrowing in the country. A high Federal Funds Rate will prompt the banks to increase their interest rates to avoid losses on loans. Consequently, the economy will begin to shrink and the rate of inflation will steadily reduce.
Question 2. How those functions may personally impact any U.S. Citizen.
The monetary policy the Fed implements affect employment opportunities for citizens. People can get jobs when the Federal Funds Rate is set low, therefore, businesses can take out loans to expand their business. New companies can also emerge with new product lines that offer employment opportunities. High inflation rates can hamper the purchasing power of citizens especially if the salaries do not rise simultaneously. The Fed can intervene by increasing interest rates in the country. Consequently, prices will reduce, making it possible for citizens to afford essentials.
Reference
TD Ameritrade. (2018). A Brief Lesson on the Federal Reserve. Retrieved October 17, 2021, from: https://www.youtube.com/watch?v=Ug_q97QKDjk