Question 1
The Federal Reserve (Fed.) acts as the bank for the Government of the United States by redeeming and selling government securities, for example Treasury Bills and Savings Bonds, and giving financial services to the Treasury Department.
The Federal Reserve Banks have a mandate to be the depository and fiscal agent to the government of the United States. In this mandate, the Federal Reserve performs several services to Treasury while acting as the bank to the Federal Government.
The services offered to the Federal Government by the Federal Reserve Include:
- collecting federal tax reports
- processing postal money orders, government checks and U.S. savings bonds
- maintaining accounts for U.S. Treasury
Question 2
The Federal Reserve acts as a bank for banks and other depository institutions such as credit unions by providing financial services to them. The services offered to banks and other depository institutions by the Federal Reserve include:
- receiving cash and coin
- electronically transferring funds
- collecting checks
Question 3
Inflation is described as the gradual and sustained increase in the general price levels of commodities. The prices increase due to a various number of reasons and they affect demand and prices of commodities.
The increase in price can be due to the situation when demand for goods and services surpasses supply. This creates a shortage which in turn causes the prices of commodities to increase.
Question 4
Inflation can be caused by an increase in money supply in the market. This means that there is too much currency chasing too few goods, this lowers the value of the currency and thus its purchasing power. This means consumers will require more currency to purchase the similar amount of goods, raising prices in essence. By increasing reserve requirements, banks will be required to increase their deposits with the Federal Reserve, reducing the amount of money banks have, thus reducing the money supply in the market to increase value of the currency and its purchasing power.
References
Board of Governors of the Federal Reserve System (U.S.). (1984). The Federal Reserve System: Purposes & functions. Washington, D.C: Board of Governors of the Federal Reserve System.
In Prochnow, H. V. (1960). The Federal Reserve System. New York: Harper.
