Monetary Policy Paper

Monetary Policy Paper
 
Introduction
 
Fiscal and monetary policies focus on quickly returning the economy to sustainable, healthy growth. Any type of fiscal relief package will boost consumer and business spending and can augment the nation’s long-term growth potential. Expansionary monetary policy can stimulate growth and provide insurance against the possibility of deflation. This paper will present information on four topics: (1) tools used by the Federal Reserve to control the money supply, (2) how these tools influence the money supply and in turn affect macroeconomic factors? (3) how money is created? (4) recommended monetary policy combinations that best achieve a balance between economic growth, low inflation, and a reasonableshow more contentTools used by the Federal Reserve to control money supply?
On The Federal Reserve Web site”The major tool the Fed uses to affect the supply of reserves in the banking system is open market operationsthat is, the Fed buys and sells government securities on the open market. These operations are conducted by the Federal Reserve Bank of New York. When the Fed wants the funds rate to rise, it does the reverse, that is, it sells government securities. The Fed receives payment in reserves from banks, which lowers the supply of reserves in the banking system, and the funds rate rises” (http://www.frbsf.org/publications/economics/letter/2004/el2004-01.html