Introduction to Finance

DISCUSSION QUESTION 2
How would you evaluate the performance of Janet Yellen as chair of the Fed BOG?
LEARNING ACTIVITY
Each of the 12 Federal Reserve Banks has its own website and tries to specialize in spe-
cifi c types of information. Go to the Federal Reserve Bank of San Francisco’s website, 
http://www.frbsf.org, and the Federal Reserve Bank of Minneapolis’s website, http://
www.minneapolisfed.org, and identify the types of consumer and economic information 
they provide.
4.4
Monetary Policy Functions 
and Instruments
Overview of Responsibilities 
The primary responsibility of the Fed is to formulate 
monetary policy
, which involves reg-
ulating the growth of the supply of money and, therefore, regulating its cost and availability. 
By exercising its infl uence on the monetary system of the United States, the Fed performs a 
unique and important function: promoting economic stability. It is notable that the system’s 
broad powers to aff ect economic stabilization and monetary control were not present when the 
Fed came into existence in 1913. At that time, the system was meant to do the following: help 
the money supply contract and expand as dictated by economic conditions, serve as bankers’ 
banks in times of economic crisis, provide a more eff ective check-clearance system, and estab-
lish a more eff ective regulatory system. Many of these responsibilities initially fell to the 12 
Reserve Banks, but as the scope of responsibility for the monetary system was broadened, 
power was concentrated with the BOG. Today the responsibilities of the Fed may be described 
as relating to monetary policy, supervision and regulation, and services provided for depository 
institutions and the government.
Public discussions of Fed operations are almost always directed toward