The Federal Reserve serves the government by:?
b - minting coins for the government.
c - selling securities for the government.
d - financing state government projects.
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Answer:
The federal reserve system controls the money supply for the country - they accomplish this primarily by buying or selling treasury securities. (mostly selling these days) Inflation is their primary focus - too much easy money may cause inflation, while not enough money may unduly retard growth...
None of the above.
(a) is wrong. The Federal Reserve does not buy T-Bills directly from the government. It purchases them only from the open market (i.e. the public). Only once in history has the Fed ever bought directly from the Treasury and that was in WWII. A government-owned central bank buying directly from the Treasury is too close to a government just turning on the printing presses to pay for its expenses. To understand that better, look up how periods of hyperinflation were causes and sustained.
(b) is wrong. Minting coins is a function of the U.S. Mint
(c) is wrong. The Federal Reserve only buys and sells securities on the open market. It does not buy and sell to the government (see (a) )
(d) is wrong. Financing state projects is fiscal policy with funds allocated by congress and spend by the executive branch.
Of the above, (a) is probably the least wrong in that the Fed holds U.S. debt (about $800B) that was purchased from non-government bond holders.
Whoever wrote this test question gets an (f).
a. making loans to the government.
The government {U. S. Treasury department} raises money by selling I. O. U.'s notes called Treasury bills through the Federal reserve banking system.
The Fed prints dollars {actually digital dollars in most cases} & distributes them to buyers, but holds the debt paper on the 9 trillion dollar U. S. national debt.
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