Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 26: Problem 1

When Congress established the Federal Reserve in 1913 , what was its main responsibility? When did Congress broaden the Fed's responsibilities?

Short Answer

Expert verified
In 1913, Congress established the Federal Reserve with its main responsibility being the creation of a safer and more stable monetary system in the U.S., predominantly through regulation of monetary policy. Congress broadened the Fed's responsibilities after the Great Depression in 1935.

Step by step solution

01

Understanding the purpose of Fed's establishment

The Federal Reserve System, also known as the Fed, was established by Congress in 1913. Its main responsibility was to provide the nation with a safer, flexible, and more stable monetary and financial system. This was done primarily through the regulation of monetary policy, which involved managing inflation, regulating the banking institutions, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions.
02

Identifying the time when Fed's responsibilities were broadened

Congress broadened the Federal Reserve's responsibilities following the Great Depression in 1935. An amendment to the Federal Reserve Act gave the Fed more power to influence money and credit conditions in the economy. The amendment created the Federal Open Market Committee as a separate legal entity, gave it responsibility for open-market operations, and started the use of reserve requirements as a monetary policy tool.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Explain whether you agree with this argument: If the Fed actually ever carried out a contractionary monetary policy, the price level would fall. Because the price level has not fallen in the United States over an entire year since the 1930s, we can conclude that the Fed has not carried out a contractionary policy since the \(1930 \mathrm{~s}\)

A student says the following: "I understand why the Fed uses expansionary policy, but I don't understand why it would ever use contractionary policy. Why would the government ever want the economy to contract?" Briefly answer the student's question.

A column in the Wall Street journal referred to policy actions aimed at "fulfilling both sides of the Fed's dual mandate." a. Who gave the Fed a dual mandate? b. Does the Fed's dual mandate require it to attain a zero percent unemployment rate? Briefly explain. c. Does the Fed's dual mandate require it to attain a zero percent inflation rate? Briefly explain.

What are the key differences between how we illustrate a contractionary monetary policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

Recall that securitization is the process of turning a loan, such as a mortgage, into a bond that can be bought and sold in secondary markets. An article in the Economist noted: That securitization caused more subprime mortgages to be written is not in doubt. By offering access to a much deeper pool of capital, securitization helped to bring down the cost of mortgages and made home-ownership more affordable for borrowers with poor credit histories. What is a "subprime mortgage"? What is a "deeper pool of capital"? Why would securitization give mortgage borrowers access to a deeper pool of capital? Would a subprime borrower be likely to pay a higher or lower interest rate than a borrower with a better credit history? Under what circumstances might a lender prefer to loan money to a borrower with a poor credit history rather than to a borrower with a good credit history? Briefly explain.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free