The historical context of the development of Federal Reserve System.
Explanation of Solution
Historical context of the development of the Federal Reserve System
1791-1811: Initial concept of Central Banking
The First Bank of the United States was established in 1791, headquartered in Philadelphia. This bank was the largest corporation in America then. However, agriculture minded people could not accept it and the contract was not renewed after 20 years.
1816-1836: Second attempt on Central Banking system
In 1816, the political power in the country supported central banking system however, was again discontinued after 20 years.
1836-1865: The Free Banking Era
The concept of ‘Free banks’ came into existence and issuance of own notes were redeemable in gold or spices started.
1863: National Banking Act
Due to the rising volume of transactions, the National Banking Act of 1863 was passed. The nationally chartered banks were backed government securities.
1873-1907: Financial Panics
Although the National Banking Act of 1863 was established, banking panic triggered among the common people and the worst depression hit the United States. It was felt that the nation’s banking and financial system required serious consideration.
1907: Wall Street collapses
In 1907, Wall Street ended in collapse, triggering a banking panic. People realized that Central banking authority was required to maintain a healthy banking system.
1908-1912: Emergence of Decentralised Central Bank
The Aldrich-Vreeland Act of 1908 came as a relief to the people after the panic of 1907. It formed the National Monetary Commission to look for a long-term answer to the nation’s banking and fiscal troubles.
1912: Woodrow Wilson as Financial Reformer
President Woodrow Wilson, (1912) supported the idea of the emergence of a decentralized central bank. He made a Committee on Banking and Finance which came up with central bank proposal which was later modified as the Federal Reserve Act.
1913: Birth of the Federal Reserve System
December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act. The decentralized central banking system was formed that compromised the challenging interests of private banks and also the sentiments of the common people.
1914: Opens for Business
On November 16, 1914, the 12 cities were selected as the place for regional Reserve Banks, which was just before World War 1. The main Reserve Bank Operating Committee comprised of Treasury Secretary William McAdoo, Secretary of Agriculture David Houston, and Comptroller of the Currency John Skelton Williams.
Introduction:
Federal Reserve System: The central Banking system of United States of America is known as the Federal Reserve System. It controls the monetary system and regulates the financial system of the USA. They supervise the safety and soundness of the entire banking system. It actively participates in framing the
Want to see more full solutions like this?
Chapter 16 Solutions
EBK THE ECONOMICS OF MONEY, BANKING AND
- In a small open economy with a floating exchange rate, the supply of real money balances is fixed and a rise in government spending ______ Group of answer choices Raises the interest rate so that net exports must fall to maintain equilibrium in the goods market. Cannot change the interest rate so that net exports must fall to maintain equilibrium in the goods market. Cannot change the interest rate so income must rise to maintain equilibrium in the money market Raises the interest rate, so that income must rise to maintain equilibrium in the money market.arrow_forwardSuppose a country with a fixed exchange rate decides to implement a devaluation of its currency and commits to maintaining the new fixed parity. This implies (A) ______________ in the demand for its goods and a monetary (B) _______________. Group of answer choices (A) expansion ; (B) contraction (A) contraction ; (B) expansion (A) expansion ; (B) expansion (A) contraction ; (B) contractionarrow_forwardAssume a small open country under fixed exchanges rate and full capital mobility. Prices are fixed in the short run and equilibrium is given initially at point A. An exogenous increase in public spending shifts the IS curve to IS'. Which of the following statements is true? Group of answer choices A new equilibrium is reached at point B. The TR curve will shift down until it passes through point B. A new equilibrium is reached at point C. Point B can only be reached in the absence of capital mobility.arrow_forward
- A decrease in money demand causes the real interest rate to _____ and output to _____ in the short run, before prices adjust to restore equilibrium. Group of answer choices rise; rise fall; fall fall; rise rise; fallarrow_forwardIf a country's policy makers were to continously use expansionary monetary policy in an attempt to hold unemployment below the natural rate , the long urn result would be? Group of answer choices a decrease in the unemployment rate an increase in the level of output All of these an increase in the rate of inflationarrow_forwardA shift in the Aggregate Supply curve to the right will result in a move to a point that is southwest of where the economy is currently at. Group of answer choices True Falsearrow_forward
- An oil shock can cause stagflation, a period of higher inflation and higher unemployment. When this happens, the economy moves to a point to the northeast of where it currently is. After the economy has moved to the northeast, the Federal Reserve can reduce that inflation without having to worry about causing more unemployment. Group of answer choices True Falsearrow_forwardThe long-run Phillips Curve is vertical which indicates Group of answer choices that in the long-run, there is no tradeoff between inflation and unemployment. that in the long-run, there is no tradeoff between inflation and the price level. None of these that in the long-run, the economy returns to a 4 percent level of inflation.arrow_forwardSuppose the exchange rate between the British pound and the U.S. dollar is £1 = $2.00. The U.S. government implementsU.S. government implements a contractionary fiscal policya contractionary fiscal policy. Illustrate the impact of this change in the market for pounds. 1.) Using the line drawing tool, draw and label a new demand line. 2.) Using the line drawing tool, draw and label a new supply line. Note: Carefully follow the instructions above and only draw the required objects.arrow_forward
- Just Part D please, this is for environmental economicsarrow_forward3. Consider a single firm that manufactures chemicals and generates pollution through its emissions E. Researchers have estimated the MDF and MAC curves for the emissions to be the following: MDF = 4E and MAC = 125 – E Policymakers have decided to implement an emissions tax to control pollution. They are aware that a constant per-unit tax of $100 is an efficient policy. Yet they are also aware that this policy is not politically feasible because of the large tax burden it places on the firm. As a result, policymakers propose a two- part tax: a per unit tax of $75 for the first 15 units of emissions an increase in the per unit tax to $100 for all further units of emissions With an emissions tax, what is the general condition that determines how much pollution the regulated party will emit? What is the efficient level of emissions given the above MDF and MAC curves? What are the firm's total tax payments under the constant $100 per-unit tax? What is the firm's total cost of compliance…arrow_forward2. Answer the following questions as they relate to a fishery: Why is the maximum sustainable yield not necessarily the optimal sustainable yield? Does the same intuition apply to Nathaniel's decision of when to cut his trees? What condition will hold at the equilibrium level of fishing in an open-access fishery? Use a graph to explain your answer, and show the level of fishing effort. Would this same condition hold if there was only one boat in the fishery? If not, what condition will hold, and why is it different? Use the same graph to show the single boat's level of effort. Suppose you are given authority to solve the open-access problem in the fishery. What is the key problem that you must address with your policy?arrow_forward
Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSON
Engineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education