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By the end of this section, you will be able to:

  • Explain the structure and organization of the U.S. Federal Reserve
  • Discuss how central banks impact monetary policy, promote financial stability, and provide banking services

In making decisions about the money supply, a central bank decides whether to raise or lower interest rates and, in this way, to influence macroeconomic policy, whose goal is low unemployment and low inflation    . The central bank is also responsible for regulating all or part of the nation’s banking system to protect bank depositors and insure the health of the bank’s balance sheet.

The organization responsible for conducting monetary policy    and ensuring that a nation’s financial system operates smoothly is called the central bank    . Most nations have central banks or currency boards. Some prominent central banks around the world include the European Central Bank, the Bank of Japan, and the Bank of England. In the United States, the central bank is called the Federal Reserve—often abbreviated as just “the Fed.” This section explains the organization of the U.S. Federal Reserve and identifies the major responsibilities of a central bank.

Structure/organization of the federal reserve

Unlike most central banks, the Federal Reserve is semi-decentralized, mixing government appointees with representation from private-sector banks. At the national level, it is run by a Board of Governors, consisting of seven members appointed by the President of the United States and confirmed by the Senate. Appointments are for 14-year terms and they are arranged so that one term expires January 31 of every even-numbered year. The purpose of the long and staggered terms is to insulate the Board of Governors as much as possible from political pressure so that policy decisions can be made based only on their economic merits. Additionally, except when filling an unfinished term, each member only serves one term, further insulating decision-making from politics. Policy decisions of the Fed do not require congressional approval, and the President cannot ask for the resignation of a Federal Reserve Governor as the President can with cabinet positions.

One member of the Board of Governors is designated as the Chair. For example, from 1987 until early 2006, the Chair was Alan Greenspan. From 2006 until 2014, Ben Bernanke held the post. The current Chair, Janet Yellen, has made many headlines already. Why? See the following Clear It Up feature to find out.

Who has the most immediate economic power in the world?

Chair of the federal reserve board

This image is a photograph of Janet Yellen.
Janet L. Yellen is the first woman to hold the position of Chair of the Federal Reserve Board of Governors. (Credit: Board of Governors of the Federal Reserve System)

What individual can make financial market crash or soar just by making a public statement? It is not Bill Gates or Warren Buffett. It is not even the President of the United States. The answer is the Chair of the Federal Reserve Board of Governors. In early 2014, Janet L. Yellen , shown in [link] became the first woman to hold this post. Yellen has been described in the media as “perhaps the most qualified Fed chair in history.” With a Ph.D. in economics from Yale University, Yellen has taught macroeconomics at Harvard, the London School of Economics, and most recently at the University of California at Berkeley. From 2004–2010, Yellen was President of the Federal Reserve Bank of San Francisco. Not an ivory tower economist, Yellen became one of the few economists who warned about a possible bubble in the housing market, more than two years before the financial crisis occurred. Yellen served on the Board of Governors of the Federal Reserve twice, most recently as Vice Chair. She also spent two years as Chair of the President’s Council of Economic Advisors. If experience and credentials mean anything, Yellen is likely to be an effective Fed chair.

Questions & Answers

what is the indicator of economics development
Bibu Reply
how can you answer economic development
Mankaa Reply
how
Fatema
Two things, first economic growth, just takes into account the increase in per capita income... Which is absolutely vague, important, but vague.On the other hand, Economic development, is a much more wider term. Visit my blog to know more about the differences, ***thetheoryofeconomics.blogspot.in
Taha
Problems faced by the trade union
Appiah Reply
Excuse me am new here
ashiru Reply
Hi
Sereena
This app is used for studying and discussions. Hope it wil be useful for you.
Sereena
If u have any questions, please feel free to ask.🙂
Sereena
Hi
Fardin
sereena i have a question.
Fardin
I also have a question
ashiru
can u tel me what are the must major part of economics which helps and is must to know before doing any business?
Fatema
You can say me about question.
Soe
plz suggest me some books of economics & history for pg entrence exam.Only books for crack pg exam!
Wani
i think the most important part is marketing
Fardin
is ny 1 replyin to my question
Fatema
fatema i told your answer
Fardin
thanks Mr fardin.. Dats really nice of u
Fatema
you are welcome. the most important part in marketing for investment and making business is consumer behavior.
Fardin
right
Fatema
explain excess supply
Shalom Reply
surplus .
Kho
an excess supply or economic surplus is a situation in which the quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level determined by supply and demand
Rahat
what is elasticity of demand
ashiru
what is equilibrium?
Richard
equilibrium is when quantity demand is equal to quantity supply
Osola
equilibrium is when quantity demanded of a commodity is equal to the quantity supplied of that commodity
Nana
equilibrium is wen quantity demand is equal to quantity supply
Sammy
how to differentiate long run and short run in monopoly?
shar Reply
Short run is a time period in which at least one factor of production is fixed; long run is when all factors of production are variable
Kevin
what is exceptional supply
Wencelyne Reply
what is the relationship between quantity demanded and price in the function Qd =f(p)
Ahmed Reply
it means qty demand varies inversely with price
mac
well, him in some places I saw it also as price function depending on offer, auctions style
Sorin
it qty demand varies inversely with price
Emmanuel
what is damand curve
Appiah Reply
it is the relationship between the quantity of goods and the price at which that quantity satisfies the demand
Sorin
refers to the graphs that show the relationship between quantity demanded of commodities and that of the price of goods and services at thesame particular time.
Alasana
is like a slope that shows the relationship between quantity that is demanded and also the price of G&S at the very same time
Palesa
Can anyone provide any production function showing returns to scale with MPL
Heron
what is perfect competition market
Bright Reply
what is monopolistic
Bright
There is no diagrams?
Mo Reply
no
Newtan
I want the diagram of shift in demand and supply
Julieth Reply
What is demand elasticity?
Dzuamo Reply
lt is a kind of demand that it existences alwas under every condition.
Abdulraof
what is the demand and supply could you explain please
Chillale Reply
demand is the willness and ability to paid for it whiles supply is when a supplier offered for sale at existing wage rate
Obed
The term supply refers to how much of a certain product, item, commodity, or service suppliers are willing to make available at a particular price. Demand refers to how much of that product, item, commodity, or service consumers are willing and able to purchase at a particular price.
Rahat
what cause inflation
Dwamena Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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