Monetary Policy

Monetary Policy

• Monetary policy, controlled by the Federal Reserve, regulates the money supply and interest rates.
  
  This influences borrowing, spending, and investment, affecting economic growth and stability.
  
  Understanding these policies is crucial for analyzing and predicting economic trends.

Monetary Policy:

• A government's policy of regulating the money in circulation and the interest rates at which money is borrowed.

Federal Reserve

• The privately owned, publicly controlled central bank of the United States

Federal Reserve:

• The main purpose is to control the money supply and promote growth and stability.

• It serves as a bank for the U.S. government and commercial banks.

• The Federal Reserve regulates the supply of money and sets interest rates.

Understanding the Federal Reserve

• Its main purpose is to use monetary policy to control the money supply and promote growth and stability

  It consists of 12 District Banks:

• Supervises lower banks

• lends money to banks

• serves as a bank for the U.S treasury

Fed also:

• supplies paper currency, called Federal Reserve Notes

• Holds banks’ reserves, 

• provides check clearing services

• supervises member banks

Ways the Fed can steer the economy

Changing Interest rates to directly influence the money supply:

Counteract Unemployment:

•  decrease reserve requirement

• decrease discount rate

• and buy securities on the open market intended to put money into the economy

Counteract inflation

•  increase reserve requirement 

• increase discount rate 

• sell securities on the open market Intended to lower demand