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Federal Reserve And Inflation Essay

861 words - 3 pages

PAGE PAGE 3 Federal Reserve and Inflation
Federal Reserve and InflationJennifer MyersWestern International UniversityECO/301 Economic TheoryGloria PearsonFebruary 25, 2007What exactly is the Federal Reserve? The Federal Reserve is an agency that is responsible for regulating the system using fiat money. Fiat money is notes issued by the fed. The Federal Reserve is a central bank that oversees the banking system and regulates the quantity of money in the economy. There are other central banks in other countries such as the Bank of England, Japan and European Central. These banks regulate and ensure the health of the banking system and control the amount of money available to the economy. The fed acts as a banks bank. Banks sometimes have financial troubles and make loans just as consumers make loans. (Mankiw, 2004 p.634)Do the effects of natural disasters such as hurricanes cause inflation or deflation? I believe it can cause both. People have lost their jobs and homes. There is also the lost of jobs from companies that will not be rebuilding. Money will become more valuable to people who are affected by natural disasters because of the loss of jobs. The economy will inflate or deflate and be stimulated because it has to be replaced. Natural disasters destroy business and homes. The price for materials and labor to rebuild will increase because of supply and demand. The prices on homes for sale will increase and the cost for insurance on homes in flood areas will rise. (Mankiw, 2004 p.656)Who is in charge of the Fed? The Board of Governors of seven members appointed by the president and confirmed by the senate runs the Fed. Among the seven members is the chairman. The Federal Reserve System consists of a Federal Reserve Board in Washington D.C. and 12 regional Federal Reserve Banks located in major cities around the country. Regional bank presidents are chosen by each banks board of directors. The banks members are chosen from the banking and business community. The fed is a very important institution.The chairman is an important person whom makes decisions that affect the economy. (Mankiw, 2004 pp.634, 635)Do voters have a say in the implementation of monetary policy? No, monetary policy is decided by the Federal Open Market Committee and Government. The FOMC consists of seven members of the Board of Governors, in which five get to vote. The FOMC meets about every six weeks in Washington, D.C., to discuss the condition of the economy and consider changes in monetary policy. The government can influence the economy with monetary and fiscal policy. Through the FOMC, the feds can...

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