Economics Essay Example | Topics and Well Written Essays - 1500 words - 9

Economics - Essay Example Although, Federal Reserve uses monetary policies tools such as open market operations, the discount rate and reserve requirement, the tools affect the economy either positively or negatively (Giuseppe, 2009). More so, increase or decrease of the reserve requirement affects interest rates in a short period as financial institutions lack funds to issue to investors. Nonetheless, higher discount rates make borrowing less attractive from Federal Reserve for many banks while low discount rate make borrowing more attractive for banks because they have access to more deposits. More so, it is necessary to establish how monetary policy caused the financial crisis in the country Considerably, Federal Reserve plays a crucial role in determining money supply in the economy that eventually affect credit availability and the interest rates in the United States. More significantly, Federal Reserve lowered interest rates in 2001 as it induced investors to borrow money to finance mortgages and purcha se of houses for speculation. However, in 2004 Federal Reserve increased the interest rates making payments of mortgages difficult thus, leading to increase in house prices. More so, businesses and individuals had accumulated a lot of interest from the mortgages, making it difficult to pay leading to high defaulting rate of the borrowed funds. More than that, the boom in house markets impacted on financial market lead to high levels of delinquencies and foreclosures. Considerably, the recession period was marked by high levels of economic downturn as the decline in the gross domestic product increased with high levels of unemployment during the recession period (Giuseppe, 2009). In addition, there is a lower level of money in the economy with a high level of bankruptcies and default in loan repayment crisis as real income declines with the economic downturn becomes worse impeding the Federal Reserve to take action as the economic recession period showed likelihood of economic depres sion era occurrence. In addition, the Federal reserve set reserve requirements limits for banks and financial institutions as it decreased reserve requirements between 2001-2005 by about 20% funds reserves owned by banks were used to give out more loans to businesses and individuals. As a result, there was an increase in money supply available in the economy thus, leading to inflation. However, in 2005 to 2008 Federal Reserve revised its monetary policy reducing the growth of GDP as it enhanced reduction of money supply in the economy. Nonetheless, the development of collateral mortgage obligations structured product served as a security for borrowing of money thus, individuals later had easer availability to loans .as they used insurance as security for the provision of safety for the loan borrowed if defaulted (Blanchard, 2008). Nonetheless, Federal Reserve failed to recognize liquidity problem in 2007, as it increased the interbank rates while failing to provide an immediate solu tion to the increasing money supply. As a result, interest rate rose to unprecedented levels that eventually led the economy into a period of recession. With the worsening of the economy, the Federal Reserve provided solutions meant to solve challenges that the USA economy was facing in the year 2008 as it uses monetary policies to solve the financial crisis. Federal Reserve increased money supply in t

The Frst Genuine System of Federal Government Essay

The Frst Genuine System of Federal Government - Essay Example From this discussion it is clear that  grandfather Franklin was more reserved, though with prodding he too became excited and animated.   Grandfather Jefferson would call him a Deist, a man of science, and argue that he favored an elimination of religious faith from American governance rather than a mere separation of church and state.   This always served to start Grandfather Franklin talking.   He told us that religious faith was an essential part of our philosophical heritage, that while it led to oppression when abused, it also functioned as an integral aspect of our culture.   He told us that he favored religion, so long as it was adequately shielded from politics and from state affairs.This paper highlights that  the reporter's grandfathers adhered to the same basic story of the Founding Fathers, and they themselves admired the founding philosophies.   They agreed that America was correct to decide that natural laws ought to govern our roles as individual citizens and that government ought to be designed to respect the individual.   They agreed that powerful governments were dangerous, a threat to these natural laws, and that is was necessary to implement a series of checks and balances in order for these ideals to persist.   They both agreed on the separation of church and state, and they both agreed that religious values nevertheless remained valuable.   They both sought to separate the government into separate branches.