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Fiscal Policy - Assignment Example

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banking system which comprises of twelve Federal Reserve banks, with each serving member banks located in their own district. The Reserve system often possesses broad regulatory powers in relation to monetary policy. Monetary policy…
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Q1. Should the Federal Reserve System control the nations money supply? Defend your position using economic principles. The Federal Reserve System refers to a U.S. banking system which comprises of twelve Federal Reserve banks, with each serving member banks located in their own district. The Reserve system often possesses broad regulatory powers in relation to monetary policy. Monetary policy implies to actions undertaken by the Federal Reserve System in order to have influence over the cost of money, availability of money and credit in an aim to promote national economic goals.
The Federal Reserve System should continue its role in controlling money supply as it proves useful. This system allows for control of discount rates in the various district banks thereby protecting consumers. In addition, the system can be able to control money supply through easing the monetary policy through sale of financial assets to increase money supply. It can also tighten monetary policy through selling financial assets hence reducing money supply. Control via the Federal Reserve System is hence greater in terms of money supply to the economy.
Q2. Prepare a proposal recommending monetary policy actions designed to correct problems with spending, employment, and prices. Defend your choices.
The Federal Reserve System monetary policy often influences the levels of spending, prices and employments through a number of means. The Reserve System main goal entails regulating money supply in the economy in order to keep unemployment and inflation low plus to promote steady economic growth.
In case of inflation, purchasing power of people reduces and leads to more unemployment in a given economy. The Federal Reserve System in such instances often increases discount rates accorded to banks in an attempt to reduce the money supply in a given economy. It can also reduce money supply through buying of government bonds.
In an attempt to increase spending and employment in a given economy, the Federal Reserve System often lowers the interest rates it gives to various banks. This hence results in people remaining with more money hence increasing spending. When more people spend money in buying goods and services, indicates that producers will concentrate in producing goods and services thereby creating more employment opportunities.
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