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            | Topic: | Business | 
        
            | Number of pages / Number of words: | 7 / 1812 | 
                
    
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Additionally, stable prices foster saving and capital formation, because when the risk of erosion of asset values resulting from inflation and the need to guard against such losses?are minimized, households are encouraged to save more and busi¬nesses are encouraged to invest more (Board, n.d.).
Beyond influencing the level of prices and the level of output in the near term, the Fed can contribute to financial stability and better economic performance by containing financial disruptions and pre¬venting their spread outside the financial sector...
        
        
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Modern financial systems are complicated and may be vulnerable to wide-scale systemic disruptions. The Fed enhances the financial system's resilience to these types of disruptions through regulatory policies geared at banking institutions and payment systems. If a threatening disturbance develops, the Fed also cushions the impact on financial markets and the economy by aggressively and visibly providing liquidity through open market operations or discount lending...
        
        
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                                    Capital Asset Pricing Model
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