Federal Reservce and Monetary Policy


Federal Reserve Monetary Policy
Aurora Julian
University of Phoenix
Principles of Economics
Cristina Marine
April 3, 2010

Federal Reserve Monetary Policy
      Monetary Policy is established by the Federal Reserve Bank.   The Federal Reserve Bank controls the value and strength of money, which is used to purchase goods and services.   Understanding how the central bank manages the nation’s monetary policy allows us to see how the Federal Reserve uses their tools to maintain and control monetary policy.   The Federal Reserve Bank is consistently reviewing our economic stability and making necessary changes to the monetary policy in an effort to stabilize funds and promote economic growth.   The Federal Reserve has recently taken specific actions to help rebuild our current economic strength, which was established in their most recent monetary policy report to the Congress.
      The purpose of money is to purchase goods and services between people.   A monetary value is assessed to goods and services and money functions as a way for people to purchase these goods and services.   In the United States our currency is the dollar.   The value of the dollar is determined by the Federal Reserve Bank.   The Federal Reserve determines whether to increase or decrease the value of money based on certain economic factors.
      Our monetary policy refers to the actions undertaken by a central bank, which is the Federal Reserve Bank.   According to the Federal Reserve, one of their main functions is to “influence the availability and cost of money and credit to help promote national economic goals” (Monetary Policy, para. 1).   The Fed became responsible for setting monetary policy in 1913 after the Federal Reserve Act of 1913.   There are three tools of monetary policy that Fed is responsible for controlling, open market operations, the discount rate, and reserve requirements.   The purpose of these three tools is to allow the...