Macroeconomic Impact on Business Operations

In: Business and Management

Submitted By breslinc
Words 1528
Pages 7
Introduction
One of the policies the United States government has to control the supply of money is the monetary policy. This policy recommended to the president of the United States by the Federal Reserve Board by using tools to control the supply of money. Tools used to control the supply of money by the Federal Reserve Board are open-market operations, the reserve ratio, and the discount rate. This paper explains how the Federal Reserve Board uses these tools to control the supply of money, explains how the tools influence the money supply and macroeconomic factors, how money is created, and recommended monetary policy.

The Federal Reserve Board A series of bank failures resulted in a severe financial panic in 1907 and millions of depositors lost their savings. Consequently, the National Monetary Commission was established to examine ways of restructuring the banking system to ensure that history does not repeat itself (Economics 180, 2009). To address the problem of restructuring, the Congress passed the Federal Reserve Act in 1913 (FRB: Federal Reserve Act, 2008). There are 12 Federal Reserve banks that act as a central banker for the banks in their region, which perform clearing checks between private banks, holding bank reserves, providing currency, and providing loans. The Federal Reserve Board is controlled by a seven person Board of Governors in which each governor is appointed to a 14-year term by the president of the United States. The long-term is intended to provide the Federal Reserve Board a strong and independent measure of political pressure and influence. The president of the United States selects a board member to act as a chairman of the board, which is only a four year term.

Monetary Tools The Federal Reserve Board is capable of changing the money supply and does do by using the monetary tools affecting the monetary policy. These…...

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