Question

Determine whether the following are functions of the Federal Reserve. a. Act as a banker's bank, clear checks, and provide deposit services for banks: b. Changing tax rates in the economy to stabilize business cycles: c. Increasing government expenditures on infrastructure, such as new bridges and schools: d. Supervise and regulate member banks in order to protect consumers: e. Using open market operations to target the supply of money: f. Provide banking services to larger corporations:

Answer 1

Answer:

The Federal Reserve is the central bank of the United States.  It is the bank for other banks and the banker to the government.

It functions include:

a) Acts as a banker's bank to clear checks, provides deposit services for banks, and facilitates smooth payment and settlement system.

b) As the banker's bank, it supervises and regulates member banks in order to protect consumers and maintain a healthy economy.  It also protects banks by ensuring they adhere to regulations and best practices.

c) It uses open market operations to target the supply of money in the economy by ensuring that the monetary policy of the government is carried out, especially with respect to inflation and deflation.  It uses interest rates and reserve rates to achieve this control.

d) It is the government's bank, offering banking services to the government, as other banks offer to corporations, institutions, and individuals.

Explanation:

It is not the function of the Federal Reserve to change tax rates to stabilize business cycles.  This is the government's prerogative, acting with Congress.  What the Federal Reserve changes is the interest and reserve rates.

The Federal Reserve does not have powers to increase government expenditures on infrastructure.  It does not provide banking services to larger corporations directly.  Instead, it provides banking services to the governments.