US monetary policy Term Paper Example | Topics and Well Written Essays - 750 words

US monetary indemnity - Term Paper exerciseWhen the Fed wants to expand the property supply (create money), it steps in and buys bonds from these dealers with newly-issued dollars acquired by the Fed for the cost of composing them into an account on a computer screen. The Federal Reserve is overseen by board of governors based in Washington, which is a government body (Solomon 1996). This board of governors comprise of 7 members appointed by the president of the unite States of America, each of them has the capacity to serve for 14 years. All this members must pass through senate for confirmation and be eligible for reappointment. The chairperson is the head of the board being deputized by the vice chairman. Both the chairman and legate are appointed by the president and must pass through senate for approval (Solomon 1996). Ben Bernanke is the current chairman he took over from Alan Greenspan. The most common tool used by the Federal Reserve is the buying and selling of gover nment securities in order to increase or reduce the amount of money in the banking placement and this is done through an open market (Timberlake 1993). When they buy securities, they pump money into the banking system and travel rapidly growthwhile sales of securities siphon money from the system. Federal Reserves aim is to use this technique to chastise the federal funds rate, that is, the rate at which banks borrow from each other (Timberlake 1993). ... the ones required by the constabulary or rather set by the Federal Reserve board of governors can use the money to bring those changes back to stability (Timberlake 1993). The board of directors of each reserve bank sets the discount rate either 14 days. Its considered the last resort for banks, which usually borrow from each other. The Fed uses the discount rate to crisp the supply of available funds, which bequeath in effect have impact on inflation and in extension interest rates (Degen 1987). If the available money is abu ndant, there is more likelihood of inflation occurring. It will become more expensive to borrow from Federal Reserve if interest rate is increased. Short bourn interest rate will, therefore, be increased by lower supply of money and the opposite is true. decimal Easing (QE) is a kind of operations within markets that assist the Federal Reserve achieve its policy targets (Degen 1987). QE involves open market operations that are not contrary from the way the Federal Reserve oft operates in its quest to attain certain policy objectives. When Federal Reserve changes their target interest rate, it is doing so in order to involve open market operations that alter reserves in the banking system so as to get to its preferred rate. Open market operations often include moves much(prenominal) as adjusting the existing reserves in the banking system so as to assist reaching a target interest rate.Many people believe that QE operates to achieve its objectives in ways that are different fro m standard monetary policy, e.g. influencing demand for loans, the wealth effect and interest rate channels (Wells 2004). Much of the misconception is too due to the untruth that QE helps to fund the US government or is equivalent to money printing. This is not true. The main