The Federal Reserve

            
             This course and the previous course of macroeconomics have helped me to have a much better understanding of how our economy is affected by the government. To be perfectly honest, I thought these courses were going to be boring but to my surprise I usually found the subjects interesting and useful. One subject I found interesting and relates closely to my employment in the mortgage banking business is the Federal Reserve System.
             The Federal Reserve has many functions. It serves as the nation's money manager, provides financial services for the U.S. Department of Treasury, serves as a clearing house for checks and electronic payments, manages the nation's money supply, provides supervision and regulation of the nation's banking and financial system, and oversees banking and finance-related consumer protections laws.
             When it acts as money manager, it manages the flow of money and credit in the economy. The Fed tries to create a monetary policy that keeps prices steady and people employed in a productive economy. The money supply must not contract or expand too quickly. Rapid expansion causes inflation by not allowing businesses to keep up with demand of goods and services. Rapid contraction causes spending and business activity to decrease. This generally leads to unemployed workers and possibly to a recession. It has three tools it uses to control the flow of money; buying and selling of government securities, raising or lowering of the discount rate and/or the reserve requirement. When it buys securities, lowers the discount rate and/or reserve requirement, more money and credit are made available. Of course by doing the opposite, it can reduce the money supply. Controlling the money supply is its most important function.
             As supervisor and regulator of financial institutions, it ensures that these institutions are financially sound and comply with banking, consumer, and any other applicable laws.