That is the FED's job and how does the FED manage the money supply? How do banks create money? Let's explore these questions as we talk about the role of the Federal Reserve Bank, also known as the FED.

Reply to these questions in your post:

If the FED decides to continue the process of raising interest rates, what is the likely response of firms and households to the increased cost of borrowing?

Thinking back to the discussion on the deficit and the debt, how might an increase in the interest rate affect a decision by the government to allow continued large deficits?

Discuss with a peer:

Reply to a peer and discuss if their reasoning about borrowing or allowing large deficits is similar to yours.

Respond to a classmate:

The Federal Reserve was established in 1913 to help reduce the panics in the financial world. It was created by Congress to provide the nation with a safer, flexible and more stable monetary and financial system.

Federal Reserve's responsibilities fall into four general areas:

• conducts the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;

• promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;

• promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;

It is the responsibility of the Fed to implement policies that will help to maintain good economic health for our country. One of the primary tools the Fed uses is interest rates -- which have a direct impact on the direction of our economy. By raising the interest rate will cause the economy to slow down.