US ECONOMY

US Economy



US Economy

Federal Reserve and Monetary Tools

Every country has a bank responsible for managing their monetary affairs and monetary policy and the U.S. (EU) has the Federal Reserve. The primary goals of Federal Reserve are maintaining low and stable inflation, the preservation and integrity of financial institutions, preventing excessive unemployment to drive the continued growth of domestic production.

The Economy is in a severe recession

The Federal Reserve has several tools that are traditionally used to implement a restrictive monetary policy, if you suspect that inflation gets out of control. First, the Fed could raise reserve requirements. This is the amount that banks must hold in reserve at the end of each day. Raising the reserve takes the money out of circulation. Second, the Fed may raise interest rates. This interest rate, which takes the Fed, allowing banks to borrow funds for DISKONT the Federal Reserve System.

The Federal Reserve banks also lend to banks. They are called borrowed reserves. When these increase, banks are borrowing from the Fed, which is helping to increase total bank reserves. When down, are helping to reduce them.

Although borrowed reserves are multiplying in bank money as non-borrowed are not a precise instrument controlled by the Fed. The Fed can encourage or discourage bank lending, but cannot set a precise level of borrowed reserves.

The Economy is in a severe Inflation

The main objective of the Federal Reserve System is to curtail inflation while avoiding recession. It does this by means of monetary policy. To combat inflation, the Fed should use a restrictive monetary policy to slow economic growth. If GDP growth is greater than the ideal 2-3%, the excess demand may cause inflation.

The three main instruments of monetary policy are:

Open market operations: the purchase or sale of bonds.

The policy of discount rates: fixing the interest rate called the discount rate at which member banks can borrow reserves at the Fed

Changing the legal requisite reserves (reserve requirements) established for banks and financial institutions.

The Federal Reserve should also monitor a number of known variables as intermediate targets. These economic variables that are neither instruments nor true Fed policy objectives of the same, but are in an intermediate situation inthe transmission mechanism between instruments and objectives.

The Federal Reserve is able to slow this growth by reducing the money supply, which is the total amount of credit issued to the market. The Fed cut the liquidity in the financial system, making the loan more expensive. It slows economic growth and declining demand has a downward pressure on prices.

Treasury Department and Public Debts

The Treasury Department includes the Office of the Secretary and the Departmental Offices. The Treasury Department is responsible for issuing currency and public debt for the US Government. There are basically three types of public debt: Treasury bills, bonds and obligations of the state. Treasury securities are assets issued by the Treasury and with maturity of less than 18 months.

These were created in 1987 when it launched the Public Debt Market Notes. They are issued at six and twelve months, ...