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Three Control Mechanisms of the Federal Reserve

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Why would the Federal Reserve want to control the size of the money supply?

Compare active and passive approaches to the economic policy. Which approach would seek to shrink the size of the government?

What determines the quantity demanded of money?

What three control mechanisms does the Federal Reserve have at its disposal to determine the size of the money supply?

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Solution Summary

Both active and passive approaches to the economic policy are reiterated.

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Federal Reserve and Monetary Policy

For this project please use the information from the Federal website (http://www.federalreserve.gov/) when addressing the questions below.

1) What are the requirements for something to be considered money? Why does the dollar have value?

2) What does the money supply consist of and what are the respective amounts in the total money supply for the United States?

3) What are the primary functions of the Fed? What role does the Federal Open Market Committee (FOMC) play in our economy?

4) What role do the financial institutions (commercial banks and other institutions) play in our financial system?

5) What is meant by the term "fractional-reserve banking" in our system? What are the implications for consumers?

6) What are the tools available to the FED for controlling the money supply? Which are used most often? Which are most effective?

7) How does the money multiplier help to determine the effects of monetary policy?

8) What are the pros and cons of using monetary policy, as opposed to the use of fiscal policy, for implementing economic policies and practices?

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