Business Finance
"Money and Monetary Policy and Inflation"

Question Description

examine two (2) methods that the Federal Reserve can implement to support a stronger economic recovery. Provide support for each method in your response. 

Final Answer

           The Federal Reserve regulates the economic conditions in USA by controlling the amount of circulating money in the financial market through devising a practically feasible Monetary Policy. The US economy is facing a downfall since last few years it needs to be controlled which concerns the decision making committee of the Fed. The Federal Reserve has increased the money supply in the economic stream by announcing the policy called Quantitative Easing (QE). Now to regulate and control the economy into positively constructive direction, the Fed should keep a strict monitoring onto this policy so that the amount of circulating money does not pass a provided limit. The substantially increasing money supply in the market reduces the interest rates by the banks which allows more people to take loans which certainly increases the amount of available money in the public and people start investing in their businesses to grow economically. This increase in investments improves the employment rates because more opportunities in businesses are available for labor. The increased demand in labor causes high wage rates which finally conclude in the increase of inflation. A point of equilibrium must be achieved by the Fed where the amount of circulating money does not affect inflation and employment rate is at its maximum for positive economic expansion. 

Ref: 

John C. Williams (2012). FRBSF. The Federal Reserve and the Economic Recovery. [WEB] January 17th 2012. Retrieved from:
http://www.frbsf.org/economic-research/publications/economic-letter/2012/january/federal-reserve-economic-recovery/


Abdul H (39)
UT Austin

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