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Monetary and international trade policy questions

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Questions:

1) Is monetary policy conducted independently in the U.S? Explain.

2) How do open market operations work through the fractional reserve banking system to impact the money supply and interest rates?

3) Who are the winners and losers when the government implements tariffs and quotas?

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Solution Summary

Independence of monetary policy; open market operations; and winners and losers of trade restrictions

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1. Monetary policy is conducted by the Federal Reserve, which was set up to act independently of the government. This mans that a particular political party should not be able to manipulate the economy to its advantage. By not allowing policymakers to control the money supply, the nation avoids the temptation of paying off deficits by printing money which can result in severe hyperinflation. While in theory this is true ,there is some argument about how independent the Fed truly is. The President appoints the seven members of Board of Governors and the Chairman, and the Senate confirms them, so you might say that voters have an indirect say. Congress constitutionally retains the power to to coin and print money (Article I, Section 8), and could disband or limit ...

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