Explanation The Federal Reserve is the central bank of the US economy. It serves as the apex authority which controls the money supply of the economy and keeps the economy stable and free from the economic fluctuations. Thus, the primary function of the Federal Reserve is to control the money supply in the economy. There are mainly 6 essential functions to the FED other than the controlling of the money supply in the economy and they are as follows: 1. FED issues the Federal Reserve notes and the paper currencies: The Federal Reserve notes and the currencies used in the US economy are issued by the FED and no other authority has the right to introduce or retire the Federal Reserve notes and the currencies from the economy. 2. FED sets reserve requirements: It is the duty of the fed to set the reserve requirements that the commercial banks should keep with them. It helps to control the credit creation capacity of the commercial banks, which helps the FED to control the inflation in the economy. 3. FED lends money to the banks: The apex authority of the banking sector is the Federal Reserve banks. They do not deal with the general public and deals with the commercial banks. The commercial banks depend on the federal banks for their capital purposes and the FED lends money to the commercial banks at the times of necessity. This makes the FED the lender of last resort to the commercial banks. 4. Acts as fiscal agent for Federal government: FED acts as the fiscal agent for the federal government in the economy through the policy implications of the government. This helps the government to reduce the difficulties and carry on the fiscal needs without much hassle. 5. Supervises the operations of the banks: There are many commercial banks in the US economy and they have to be controlled well in order to control the economy from the fluctuations. The monitoring authority of the commercial banks is the FED, and it does the work perfectly in order to keep the economy free from the economic fluctuations and keeps the economy stable...

The functions of FED.

Macroeconomics

21st Edition

ISBN: 9781259915673

Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.

Publisher: McGraw-Hill Education

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