Economics of Money, Banking and Financial Markets (12th Edition) (What's New in Economics)
Economics of Money, Banking and Financial Markets (12th Edition) (What's New in Economics)
12th Edition
ISBN: 9780134733821
Author: Frederic S. Mishkin
Publisher: PEARSON
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Chapter 13, Problem 1Q
To determine

The reason for making twelve regional Federal Reserve banks instead of one central bank.

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Explanation of Solution

There were mainly three reasons for twelve regional Federal Reserve Banks instead of one single with centralized powers. Firstly, twelve regional banks were established because of a long-standing convention of centralized power's distrust. It helped to maintain the balance in the constitution and preserve the rights of all individuals.

Secondly, after the two failures in the central bank system, there existed distrust in the minds of the people of Country A. To preserve people’s interest in every region, different regional banks were initiated.

Lastly, the operation by the federal banks would result in too much intervention by the central authorities. Therefore, a decentralized system was established so as to maintain equality of policy deliberations among all the regions in Country A.

Economics Concept Introduction

Introduction: Federal Reserve Bank is a financial institution that provides various banking services to all the individuals and organizations in Country US. It was established by Congress in the year 1913.

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