Write a brief history of the FEDERAL RESERVE system and delineate the role the Fed has in designing and implementing U.S. Monetary policy. Identify the THREE tools the FED has available to influence Money Supply and interest rates.
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The Federal Reserve System, or The Fed, is the central bank in the United States. While the current system as we know it did not occur until 1913, central banks were in and out of existence in the US back to it's founding. The primary purpose of the Fed is to control the money supply. However, this is not all it does. The Fed also is responsible for clearing checks from banks, and it serves as a "lender of last resort".
It's important to note that the purpose of The Fed is to serve as the bank's bank. An institution, like Bank of America or Citibank, for example, holds their required reserves at The Fed. The Fed also acts as the government's bank, and processes T-Bills, notes,and bonds for the government.
"The Fed has three monetary policy tools-open market operations, reserve requirements and discount window lending.
Open Market Operations
Open market operations are the most important and active tool of monetary policy that the Fed uses. These operations consist of the Fed ...
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