32.8k views
20 votes
Classify each of the tasks according to whether or not they are tasks of the Federal Reserve.

Classify each of the tasks according to whether or not they are tasks of the Federal-example-1
User Edi H
by
3.1k points

1 Answer

5 votes

Task of Federal Reserve

- Managing the United States money supply

- Acting as a lender of last resort

- Engaging in the monetory policy

Not Task of Federal Reserve

- Creating the federal budget

- Minting coin currency

- Engaging in fiscal policy

- Managing Europe's money supply

The main responsibility of the Federal Reserve (also known as the Fed) is to manage the quantity of money in the United States economy to engage in monetary policy. In addition to this (rather enormous) task, the Fed also acts as a lender of last resort for banks, since they play a key role in the economy translating savings to investment. The Fed also has several lesser‑known everyday responsibilities, such bank supervision.

There are other central banks that perform similar functions for other areas of the world. For example, Europe's money supply is managed by the European Central Bank (ECB). There are also other institutions in the United States that handle other important tasks for our economy. For example, minting coin currency is the job of the United States Mint, and fiscal policy, which also involves crafting the federal budget, is taken care of by the president and Congress.

The significance of a central bank lies in its function of managing the monetary system of the country, internally as well as externally. By the nature of its business, the central bank is intimately connected with the banking system and money market of the country and can definitely regulate the monetary system of country in the general interest of the nation.

Managing the united states money supply / Minting coin currency: The Federal Reserve Board is the issuing authority for Federal Reserve notes and ensures that there is enough cash in circulation to meet the public's demand. The Federal Reserve Banks distribute, receive, and process Federal Reserve notes and distribute and receive coin through depository institutions. Central bank now-a-days has the monopoly of note-issue in every country. The currency notes printed and issued by the central bank are declared unlimited legal tender throughout the country. Central bank has been given exclusive monopoly of note-issue in the interest of uniformity, better control, elasticity, supervision, and simplicity. It will also avoid the possibility of over-issue by individual banks.

Acting as a lender of last resort: Central bank is the lender of last resort, for it can give cash to the member banks to strengthen their cash reserves position by rediscounting first class bills in case there is a crisis or panic which develops into ‘run’ on banks or when there is a seasonal strain. Member banks can also take advances on approved short-term securities from the central bank to add to their cash resources at the shortest time.

Engaging in the monetory policy: The Central Bank set interest rates to target low inflation and maintain economic growth. Every month the MPC will meet and evaluate whether inflationary pressures in the economy justify a rate increase. To make a judgement on inflationary pressures they will examine every aspect of the economic situation and look at a variety of economic statistics to get a picture of the whole economy

Creating the federal budget / Engaging in fiscal policy: Fiscal policy is the use of government spending and taxation to influence the economy. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty. It is generally the task of government of the country to create budget and fiscal policy.

Managing Europe's money supply: Money supply of Europe will be managed by the central bank of Europe, not the US central bank and the US cannot influence the decision making process of Europe's central bank.

User Ruokki
by
3.0k points