God's Existence
...sidents. The presidents of the Federal Reserve Bank of New York serves on a continuous basis; the presidents of the other Federal Reserve serve one-year terms on a rotating basis beginning January 1 of each year. The FOMC holds eight regular scheduled meetings per year. At these meetings, the committee reviews economic and financial conditions, determines the appropriate stance of the monetary policy, and assesses the risk to the economic outlook that is FOMC is responsible for making decisions about the conduct of the open market operations in order to influence the monetary base. The committee policy decisions adhere to the long-term objective of price stability and substantial economic growth. Thus the main responsibility of the FOMC is that of the open market operations. By using the three tools, the Federal Reserve influences the demand and the supply of the balance that depository institutions hold at the Federal Reserve. In this way the Federal Funds rate is created and this is the rate at which depository institutions lend their excess reserves to other institutions overnight. Whenever there are changes in the Federal Funds Rate this will affect a lot of other areas such as: foreign exchange rates, the amount of money and credit and ultimately, a range of economic variables including employment, output and prices of goods and services. The Open Market Operations are the Federal Reserve’s most flexible means of carrying out monetary policy. What are open market operations? This is the process of buying and selling of securities in the market to influence reserves and the federal funds rate. In order for open market to run and operate effectively, the assets that are being traded must be bought and sold quickly in any volume the FED deemed necessary. There are certain advantages the open market has over the other tools of the monetary policy. First the open market is conducted at the FED initiative, which allows them to have full control over the volume of activities. Second open market operations are reversible if a mistake occurs and third and most importantly can be discrete in it’s’ operations. Through the open market operations the FED buys and sells Government securities in the secondary market in order to adjust the level of reserves in the banking system, hereby controlling the money supply. When the FED purchases Government securities it pays the seller with a check drawn upon it which triggers a chain effect. If the seller is not a bank, the seller will deposit the check with its’, which will in turn deposits the check with it’s’ bank, and the process continues until the check is deposited with the Federal Reserve by a corresponding bank of one of these banks which is a member of the federal reserve. In either of the cases the banks that the check was deposited in ends up with more legal reserves which will in turn increase their excess reserve which is legal reserve minus required reserves. The bank realizes that excess reserve earns no interest; therefore excess reserve is costly to keep as they cause banks to loose profits. Hence, the bank lends the excess reserves in order to gain more revenue, which will increase profits. This is due to the fact that a rate of interest is charged on each loan. As the barrowers spend their loans this also trigger a chain effect, which will be explained as I go along. When a loan is given to a barrower, that barrower must spend the money the same way as he told the bank he would. The barrower use the money to pay a supplier for raw material or equipments, this supplier deposits at least apart of his proceeds with his bank, thus his bank’s excess reserves increases. This process continues until the entire initial excess reserve is held as currency outside of...