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|Macroeconomics - Unit 9|
What's in This Chapter?
Is money, or the love of money, the root of all evil? Should we eliminate money? If we eliminate money, will all evil disappear? If the answer is no, then money must not be the root of all evil. If we eliminate money, what economic consequences will this have? What are the functions of money? These questions, among others, are answered in this unit.
Nearly every country or region in the world has a central bank. The most important roles of a central bank are to supervise a nation's banking system and to control its money supply. Sections 3 and 4 discuss the role of the central banks and the Federal Reserve (the Fed) System in the United States. The Federal Reserve Board is in charge of our country's monetary policy. It acts independently from Congress and the White House. United States citizens do not elect Federal Reserve Board governors. They are appointed by the President, and then approved by the Senate. The disadvantage is that the Fed governors are not directly accountable to the voters. The advantage is, however, that unlike politicians, Federal Reserve Board governors can act independently of what may be the popular thing to do. They can, therefore, concentrate on long-run policies.
The Federal Open Market Committee is the day-to-day decision-making committee of the Federal Reserve System. Financial markets around the world closely follow every step the FOMC makes. In addition to controlling the money supply, it serves many other functions, which are explained in this unit. During the past two decades, the Fed has done an admirable job of restricting the growth in the money supply. Consequently, inflation has remained low in the United States.
Fractional reserve banking, the Federal Deposit Insurance Corporation, velocity and the quantity theory of money are discussed in the last sections of this unit.
|Last Updated on Saturday, 29 December 2012 07:30|