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The Tools of the Monetary Policy

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Is the Fed controlled by Congress or the executive branch of the government? What are the three tools the Fed has available to influence the economy? What can it do today to get the economy to recover?

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Although the Fed was created by the act of Congress, it has the authority to conduct the monetary policy without getting approval from the President or from the Congress. The only direct control from the President on Fed is through the appointment of the seven governors and appointing one of them as the chairman. Because they are appointed for only one term of 14 years, they should have no interest to please the President for reappointment. However, some of the governors are appointed due to their political affiliation.

The three tools of monetary policy used by Fed are:

1. Open market operation
This tool ...

Solution Summary

The Fed is free from the influence of the President or the Congress in its policy decision. The Fed uses three tools to control the money supply, ie open market operation, reserve requirement and discount window lending.

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The key objectives and what are the conventional monetary policy tools

3A) What are the key objectives and what are the conventional monetary policy tools does the Fed use to achieve those objectives?

Then you read the speech given by the Fed's Chairman Bernanke on Oct 11, 2011 at the Federal reserve Bank of Boston at this url link http://www.federalreserve.gov/newsevents/speech/bernanke20111018a.htm of the Fed's website to answer the following question 3B.

3B) Read the speech of the Fed Chairman Ben Bernanke he delivered on Oct 18, 2011 at the Federal reserve bank of Boston, which is available at this url link http://www.federalreserve.gov/newsevents/speech/bernanke20111018a.htm

After reading the contents of his speech topic, "The Effects of the Great Recession on the Central Banks' Doctrine and Practice", critically and briefly analyze the direction of changes in monetary policy practice of the Federal Reserve from its conventional monetary policy framework in the wake of the great recession the US economy currently faces.

Alternatively (for 3.b),
3.b. Read the following two news analysis on the effect of monetary policy actions on November 30, 2011 by China on the global market, including US stock market. Based on your knowledge on monetary actions and its impact on the economy, briefly analyze the connection between the reduction of reserve requirement by China's central bank and its economy plus the economy of the rest of the world, including the US economy.

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