Fiscal Policy: Should the Federal Reserve System Control the Nation's Money Supply - Assignment Example

The Federal Reserve System refers to a U.S. banking system that comprises twelve Federal Reserve banks, with each serving member bank located in its district. The Reserve system often possesses broad regulatory powers regarding monetary policy. The monetary policy implies actions undertaken by the Federal Reserve System to influence the cost of money, availability of money, and credit with an aim to promote national economic goals.

Defend your choices. The Federal Reserve System's monetary policy often influences the levels of spending, prices, and employment through several means. The Reserve System's main goal entails regulating the money supply in the economy 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 the 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 on buying goods and services, indicates that producers will concentrate on producing goods and services thereby creating more employment opportunities.