Federal Reserve free essay sample

Paper Federal Reserve Paper by LeAnn Bomar University of Phoenix Eco/372 Principles of Macroeconomics May 16, 2013 I have been asked to prepare this essay to familiarize foreign officials with The United States Federal Reserve. As parties interested in doing business in our country, I understand how important it is for you to inform yourselves on the Federal Reserve and how it operates. In this paper, there will be information pertaining to the federal fund rate, monetary policy, stimulus program, and the current state of money in this economy. First, I will explain the federal funds rate. The federal funds rate is the interest rate at which banks loan money to each other. Banks are required, by law, to keep a certain amount of customer money on reserve. Banks try to stay as close to the reserve amount as possible, without going under, and borrow money from each other to maintain the limit. We will write a custom essay sample on Federal Reserve or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The federal funds rate affects how the banks decide on interest rates because it is used to control the supply of available funds. Raising the rate makes it more expensive to borrow and lowers the supply of available money. Lowering the rate makes it less expensive to borrow money increases the supply of available money (Bankrate. om,  2013). According to  What Is Being Done To Control Inflation?   (2013), the primary job of the  Federal Reserve  is to control inflation while avoiding a  recession. It does this with  monetary policy. Monetary policies are used to either stimulate or discourage consumer spending in an effort to stabilize the economy after booms or recessions. To avoid inflation, the Federal Reserve implements contractionary monetary policy, this slows economic growth. This is typically done by raising the federal funds rate, making it more expensive for banks to lend each other money, thus decreasing the money supply in circulation. According to  Investopedia Stimulus Package  (2013), â€Å"a stimulus package is a package of economic measures put together by the government to stimulate a floundering economy. The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending. † By adding money into the economy, and increasing money supply, the idea is that consumers will spend the money, which in turn, will help businesses maintain their operations and keep workers employed. If the money is placed in savings accounts, banks will be able to loan more money to more consumers. If the money is used to pay debts, there are less loan defaults. The increased money supply is intended to keep a healthy economic cycle of businesses employing individuals, and those employed individuals, in turn, spend money in businesses. Based on the most recent information found in the M2 figure, there is an indication of growth in the money supply. This information can be found on the Federal Reserve Statistical release which is updated weekly. If money supply outpaces economic growth, over an extended period of time, inflation could be a likely result. In an instance where money supply seems to be excessive, it is typical of the Federal Reserve to employ a contractionary monetary policy to slow economic growth. Explaining economic matters can be especially complex. There are quite a few factors involved in a constantly moving and changing macroeconomic structure. The information provided in this paper was intended to familiarize potential business partners with economic terms and procedures in the United States. As this information is constantly changing, it is very important to also learn where to find the updated information so your business decisions can be informed, with the most current information available. References Bankrate. com. (2013). Retrieved from http://www. bankrate. com/rates/interest-rates/federal-funds-rate. aspx Investopedia Stimulus Package. (2013). Retrieved from http://www. investopedia. com/terms/s/stimulus-package. asp What Is Being Done to Control Inflation?. (2013). Retrieved from http://useconomy. about. com/od/inflationfaq/f/Control_Infla. htm[pic]