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Federal Reserve Report

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Federal Reserve Report

Federal Reserve Report
Background
The central bank in the United States is called the Federal Reserve System. The Federal Reserve System serves several purposes. Some of the purposes that the Federal Reserve serves include controlling monetary policy, overseeing financial institutions, banking for the government, distributing money, loaning money as last resort, and provide banking for commercial banks. The Federal Reserve is made up of 13 banks. The first 12 banks have their own region. The 13th bank is the headquarters located in the capital, Washington D.C. The Federal Reserve is independent of the government it is not part of the Department of Treasury. In some countries, like England, the central bank is part of the government (Colander, 2010, p.341). The Federal Reserve has a leadership group called the Federal Open Market Committee or FOMC. The major function of the FOMC is to select monetary policies. The FOMC is made up of a group of governors that are appointed by the president.
The Discount Rate
The discount rate is an interest rate. When commercial banks borrow money from the Federal Reserve it is just like when a normal citizen borrows money from a bank, the loan is paid bank with interest. The discount rate is “the rate of interest the Fed charges for loans it makes to banks” (Colander, 2010, p.348). The discount rate is controlled by the how commercial banks borrow. The Federal Reserve is a last result bank, this means they only want to loan money if the commercial banks have no other options. The Federal Reserve adjusts the discount rate to ensure banks only borrow when needed. If the rate is high commercial banks will be less likely to borrow. On the other side if rates are low more banks would borrow. The Federal Reserve estimates how much each commercial bank will have to loan out. If the Federal Reserve has a surplus

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