What is the Federal Reserve (Fed) all about? Which Federal Reserve District Bank is closest to you? Who is the current Chairman of the Fed? Should the Fed remain independent from political authority or should the President and Congress have a say in their operations? Why? Why not? What is FOMC? What is the current Federal Funds Rate? How does the Fed implement monetary policy to manage the economy? At the last meeting of the FOMC, what was done to the federal funds rate--increased, decreased, or no change from previous meeting? Given the current state of the U.S. economy, should the Fed be using expansionary monetary policy or contractionary monetary policy? Why? Why Not?
Monetary Policy and the Federal Reserve:
The Federal Reserve (Fed) is the central bank of the United States of America. It is the "guardian" of the United States economy where it is responsible for implementing some policies that ensures that the country is operating smoothly. The Federal Reserve not only regulates financial institutions in the U.S. but also acts as the official bank of the United States government and a bank for all bank's in the country watching over the economy by influencing and managing the amount of money available in the economy. The Federal Reserve can stimulate or slow down growth of the American economy through various instruments that have the effect of rising or dripping the interest rates in the economy. These instruments such as open market operations, repurchase agreements, credit control or discount rates are collectively often referred to as monetary policy instruments and they can either be expansionary or contractionary. Contractionary monetary policy reduces the amount of money in the economy while expansionary monetary policy increases money supply in the economy. These monetary policy instruments are usually used to influence and regulate various factors in the economy such as inflation levels, employment levels and output level in the economy (The Federal Reserve System, ...
Contractionary monetary policy is clearly summarized in this posting.