ECON 2010 Study Guide - Final Guide: Output Gap, United States Treasury Security, Virtuous Circle And Vicious Circle
Document Summary
Fed watch: federal reserve"s monetary policy decisions have significant effects on financial markets and the macro economy: monetary policy is a major stabilization tool; More flexible and responsive than fiscal policy: analysts attempt to forecast fed decisions about policy. Federal reserve: responsibilities of the federal reserve. Conducting monetary policy (determine amount of money circulating) Oversight and regulation of financial markets and banking activity (important role in preventing and solving financial crises: federal reserve began operations in 1914. Promotes public goals (economic growth, low inflation, smoothly functioning financial markets) Motivation for creating the fed was to stabilize the financial markets and the economy. Banking panics occur when costumers believe one of more banks might go bankrupt: rush to withdraw funds, banks have inadequate reserves to meet demand, and forced to close. Fed prevents bank panic by: supervising and regulating banks, loaning banks funds if needed.
