The Federal Reserve

Paper Summary:

This paper explains that the U.S. Federal Reserve was established to help provide balance and stability to the country's economic and monetary system. The paper further explains that it does this by using the monetary tools at its disposal that are designed to promote growth, eliminate inflation and create employment.

From the Paper:

"The ability to alter the reserve ratio is the Federal Reserve's most powerful economic tool, yet it is the least used. The reserve ratio is the percentage of deposits that member banks must hold in reserve to be available for access by depositors. If the Reserve wants to decrease lending, they would increase the reserve ratio, thus forcing banks to keep more money on hand and available to customers. When loans become more difficult to obtain, interest rates are higher and consumer spending decreases. Banks that over lend are able to arrange inter-bank loans with banks having an excess of reserve monies to compensate for the over lending and re-establish their reserves to the appropriate level. Normally the Federal Reserve manipulates member banks' reserves through the buying and selling of securities rather than altering the reserve ratio. The effect is the same by loosening or constricting the amount of money available for circulation whether the money is held in reserve or is not available for use due to constriction of the money flow."

More papers on The Federal Reserve:

• Essay # 72108 : "The Federal Reserve"
• Analytical Essay # 142236 : "The Structure of the Federal Reserve"
• Analytical Essay # 142590 : "The Impact of the Federal Reserve"
• Persuasive Essay # 105444 : "The Federal Reserve Bank Today"

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