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Chapter 15: Q. 15.3- Learning Objectives. (page 322)

Describe the basic structure and functions of the Federal Reserve System.

Short Answer

Expert verified

The Fed is split into two parts: A central authority, the Board of Governors, based in Washington, D.C., and a regional authority, the Fed System Banks.

Step by step solution

01

Federal system.

The Federal Reserve is the United States' central bank. The Fed controls the national banking system, handles inflation, stabilizes financial markets, protects consumers, and more. Despite the fact that the president appoints the members of the Fed board, it is designed to function independently of political interference.

02

Basic structure of Fed system. 

The FRS is split into two parts: a centralized Board of Governors in Washington, D.C., and a decentralized network of 12 Federal Banks across the U.S . The Federal Open Market Committee meetings are one in altogether the Fed's most visible activities.

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Most popular questions from this chapter

During the late 1970s, prices quoted in terms of the Israeli currency, the shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with dollarshekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation. In what way did the U.S. dollar function as money in Israel during this period?

Assume a 1 percent reserve ratio and no currency leakages. What is the potential money multiplier? How will total deposits in the banking system ultimately change if the Federal Reserve purchases5 million in U.S. government securities?

Draw an empty bank balance sheet, with the heading "Assets" on the left and the heading "Liabilities" on the right. Then place the following items on the proper side of the balance sheet.

a. Borrowings from another bank in the interbank loans market

b. Deposits this bank holds in an account with another private bank

c. U.S. Treasury bonds

d. Small-denomination time deposits

e. Mortgage loans to household customers

f. Money market deposit accounts

Consider Figure 15-4. Explain how Jill Jones's debit-card transaction affects the assets and liabilities of Citibank and of Bank of America. Why does this transaction leave unchanged the total quantity of deposits in the banking system and, consequently, the money supply?

Draw an empty bank balance sheet, with the heading "Assets" on the left and the heading "Liabilities" on the right. Then place the following items on the proper side of the balance sheet:

a. Loans to a private company

b. Borrowings from a Federal Reserve district bank

c. Deposits with a Federal Reserve district bank

d. U.S. Treasury bills

e. Vault cash

f. Transactions deposits
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