Fundamentals of Economics. Доловова Н.Н - 39 стр.

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QUICK QUIZ list and briefly explain the three principles that describe how the
economy as a whole works
The Federal Rese rve
Whenever an economy relies on a system of fiat money, as the U.S. economy
does, some agency must be responsible for regulating the system. In the United
States, that agency is the Federal Reserve, often simply called the Fed. If you look at
the top of a dollar bill, you will see that it is called a "Federal Reserve Note.'' The Fed
is an example of a central bank—an institution designed to oversee the banking
system and regulate the quantity of money in the economy. Other major central banks
around the world include the Bank of England, the Bank of Japan, and Germany's
Bundesbank.
The Fed's Organization
The Federal Reserve was created in 1914 after a series of bank failures in 1907
convinced Congress that the United States needed a central bank to ensure the health
of the nation's banking system. Today, the Fed is run by its Board of Governors,
which has seven members appointed by the president and confirmed by the Senate.
The governors have 14-year terms. Just as federal judges are given lifetime
appointments to insulate them from politics, Fed governors are given long terms to
give them independence from short-term political pressures when they formulate
monetary policy.
Among the seven members of the Board of Governors, the most important is
the chairman. The chairman directs the Fed staff, presides over board meetings, and
testifies regularly about Fed policy in front of Congressional committees. The
president appoints the chairman to a four-year term.
The Federal Reserve System is made up of the Federal Reserve Board in
Washington, D.C., and 12 regional Federal Reserve Banks located in major cities
around the country. (If you look at any dollar bill, you can find the name of the
regional bank that issued that dollar.) The presidents of the regional banks are chosen
by each bank's board of directors, whose members are typically drawn from the local
banking and business community.
The Fed has two related jobs. The first job is to regulate banks and ensure the
health of the banking system. This task is largely the responsibility of the regional
Federal Reserve Banks. In particular, the Fed monitors each bank’s financial
condition and helps to facilitate bank transactions by clearing checks. It also acts as a
banker's bank. That is, the Fed makes loans to banks when banks themselves want to
borrow. When financially troubled banks find themselves short of cash, the Fed acts
as a lender of last resort—a lender to those who can not borrow anywhere else—in
order to maintain stability in the overall banking system.
The Fed's second and more important job is to control the quantity of money
that is made available in the economy, called the money supply. Decisions by
policymakers concerning the money supply constitute monetary policy. At the

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