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The Fed

 

             Monetary policy is extremely prominent in affecting the performance of the economy. The Federal Reserve System, the central bank of the U.S., is responsible for carrying it out. While it is of huge importance in today's economy, it is not alone when it comes to "money controlling tools." Fiscal Policy, which is controlled by the U.S. Government, is the other way in which to control the economy. Most people are more familiar with fiscal policy while many less are familiar with monetary policy and its tools, which are interest rates, reserves, and open market operations. Monetary policy affects all kinds of economic and financial decisions people make in this country. Whether to get a loan to buy a house, a car, or to start up a company, monetary policy will have its say. Whether to expand a business by investing in a new plant or equipment, whether to put savings in a bank, in bonds, or in the stock market, monetary policy will be there influencing every step of the process. Furthermore, because the U.S. is the largest economy in the world, its monetary policy also has significant economic and financial effects on other countries. The object of monetary policy is to influence the performance of the economy as reflected in such factors as inflation, economic output, and employment (Melton 6). It works by affecting demand across the economy. That is, people's and firms' willingness to spend on goods and services. .
             Although this paper focuses on US monetary policy, some further discussion of fiscal policy is appropriate because it is the other way that the economy can be controlled. The fiscal policy consists of two main tools: the changing of tax rates, and the changing government spending. The main point of fiscal policy is to keep the surplus/deficit swings in the economy to a minimum by reducing inflation and recession. A change in tax rates is usually implemented when inflation is unusually high, and there is a recession with high unemployment.


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