How can i explain The Federal Reserves System in this article.,0,2044340.story  

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william1941 | College Teacher | (Level 3) Valedictorian

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From the article you can see a reference made to several issues: inflation, interest rates, and government bonds.

Now the Federal Reserve System or the Fed can influence all of these. The interest rates and inflation are influenced by the Fed buying or selling government bonds. When the Fed sells bonds they are bought by banks; this reduces the amount of money that the banks can lend. The banks also increase the interest rates at which the money is lent. This decreases the money available with borrowers. Now inflation has a direct correlation to the amount of money in the economy. If there is more money in the economy it drives up prices as people have the resources to buy the same products at a higher price. So this leads to a higher rate of inflation.

Also, by selling bonds the Fed is able to collect money which is required for all the tasks that the government performs. By buying government bonds this amount does get reduced but it is more important right now to infuse money into the economy for economic development, therefore here the Fed in going ahead with this.

A careful reading of the issues in the article followed by a more detailed study of the same will allow you to understand how the Fed influences the whole economy by the actions it performs.

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