The Federal Reserve System
Read these sections to learn about the Federal Reserve System's structure, functions, and goals. Also, identify and explain the tools of monetary policy and way money is created or destroyed through the purchase and sale of government bonds.
The Federal Reserve System
Key Takeaways
- The Fed, the central bank of the United States, acts as a bank for other banks and for the federal government. It also regulates banks, sets monetary policy, and maintains the stability of the financial system.
- The Fed sets reserve requirements and the discount rate and conducts open-market operations. Of these tools of monetary policy, open-market operations are the most important.
- Starting in 2007, the Fed began creating additional credit facilities to help stabilize the financial system.
- The Fed creates new reserves and new money when it purchases bonds. It destroys reserves and thus reduces the money supply when it sells bonds.