How does the Federal Reserves System affect our country?

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william1941 | College Teacher | (Level 3) Valedictorian

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The Federal Reserve System, also called the Fed is the body that has the responsibility of overlooking the banking system of the country. It in a sense influences every aspect of our economy and therefore our country.

The Fed frames rules and regulations to help maintain the financial stability of all the banks. It controls the money supply in the country by controlling the interest rates, and liquidity. An increase in the interest rates by the Fed results in an increase in savings on the one hand and people having to pay more for their loans and mortgages on the other. It also reduces the amount of money being invested in the creation of new industries as business owners find it costlier to borrow money. A reduction in the interest rates has an opposite effect.

The Fed supplies the government with funds by selling government bonds. The increase or decrease in inflation is controlled by the Fed by increasing or decreasing the liquidity in the economy.

Therefore as the economy is an integral part of our country, all the actions by the Fed that affect the economy ultimately affect our country.

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