Reserve Requirements
The article "Fedpoint 45:
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The article "Fedpoint 45: Reserve Requirements" gives an explanation of the purpose of reserve requirements in the Federal Reserve Bank of the United States. The Federal Reserve Bank is the central bank of the United States. Chairman Greenspan stated the goal of the Federal Reserve Board is "to contribute as best we can to the highest possible growth of income and wealth over time (Greenspan, 1997, p. 258). The Federal Reserve Board sets monetary policy to ensure a stable economy (Brayton, et. al., 1997, p. 244) and to accomplish the goal of high growth in income and wealth. Reserve requirements, the discount rate, and open market operations are the tools of the Federal Reserve Board (Fedpoint 45, 1997, p. 4). The article "Fedpoint 45: Reserve Requirements" stresses that reserve requirements play a role in setting monetary policy. The role of required reserves is changing and will become unnecessary in the future. The need for reserve requirements has changed over time. In the beginning, reserve requirements were needed to give stability to the financial system of the country. They did this by helping to ensure that individual banks would have enough liquidity to meet the demand for withdrawals from depositors (Sellon and Weiner, 1996, p. 7). This purpose has become less important over time with the creation of bank clearinghouses in the late 1800s and the Federal Reserve's discount window in 1913. By the 1930s, reserve requirements were bei
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onetary policy when it changes reserve requirements.
The Federal Reserve Board has recently changed the way it models the economy to include expectations. The new model places more importance on what people think is happening in the economy instead of just what the economic indicators are showing to predict future trends (Brayton, et. al., 1997). Expectations are important to predicting and controlling inflationary pressures on the economy. The inclusion of expectations in modeling of the economy by the Federal Reserve Board will lower the impact of the reserve requirement on controlling money growth, and inflation. It also lowers its influence on monetary policy. These changes have meant that the Federal Reserve Board now relies much more on open market operations to control the economy (Greenspan, 1997, p. 254).
Analysis of Fedpoint 45: Reserve Requirements
The article Fedpoint 45 is written is simple language and is intended for the layman, or entry level student, wishing an overview of reserve requirements and an understanding of their purpose in the Federal Reserve System. It accomplishes this task adequately. The article is accurate in its presentation but is incomplete especially in neglecting to mention th
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Some common words found in the essay are:
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Approximate Word count = 1448
Approximate Pages = 6 (250 words per page)
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