Prior to beginning work on this discussion,
● Read Chapter 13 of Macroeconomics: Private and Public Choice.
Monetary policy is largely determined by
... [Show More] the Federal Reserve Bank (Fed) in the United States.
For this discussion, let’s cordially debate the necessity of the Fed.
For your initial post address the following:
● How does the Fed control the money supply? Be sure to explain how they can expand
or restrict the money supply.
● How does the banking system create money?
● List two to three pros and cons of the Federal Reserve Bank.
● What is your conclusion: is the Fed necessary? Support your opinion.
Your initial response should be a minimum of 200 words. Graduate school students learn to
assess the perspectives of several scholars. Support your response with at least one scholarly
and/or credible resource in addition to the text.
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Hello class,
For the discussion this week, we are focusing on the Federal Reserve Bank, nicknamed the Fed.
The goal of the Fed is “to provide the nation with a safer, more flexible, and more stable
monetary and financial system” (n.d.). We have all seen the Fed in the news recently with the
collapse of the Silicone Valley Bank (SVB) and how the Fed and other government agencies
stepped in to avoid an economic recession (Foster).
How does the Fed control the money supply? Be sure to explain how they can expand or
restrict the money supply.
According to Gwartney et al. (2018), the Fed controls the supply of money through four main
techniques (Gwartney et al., 2018). The first technique is lowering or raising the reserve
requirements for banks. By using this technique, the Fed is able to lower reserves, and the bank
is able to give out more money and loans, which increases the supply. Adversely when the Fed
raises the reverse, the supply of money lowers because banks hold the funds to meet the reserve
amount (Gallant, 2022). The second technique is by changing short-term interest rates; the Fed
can either discount or not the amount the banks are required to pay on these loans. By either
decreasing or increasing the discount, the money becomes more or less liquid (Gallant, 2022).
The third technique is by buying or selling securities or other assets in an open market (Gwartney
et al., 2018). If the Fed wants to decrease the amount of supply, they will sell off assets like
bonds in their accounts and take the cash out of supply (Gallant, 2022). Conversely, if the Fed
wants to increase the supply, they will go on a purchasing spree. The fourth technique is
increasing or decreasing the volume of loans that are extended to banks or other financial
institutions (Gwartney et al., 2018). [Show Less]