Macro-Economics Discussion 

Please respond to any part of the following discussion postings.
a. Please write a paragraph or more on any part of the following three discussion
b. Please provide any intext citations when necessary.
c. Please include reference(s) for each discussion response at the end of each paragraph.

The Federal Reserve, also referred to as “the Fed,” is the central of the United
States. The Fed’s main responsibilities are to control interest rates, the nation’s
supply of money, and to oversee the banking system. The Fed was initiated by
Congress in 1913 after President Woodrow Wilson signed the Federal Reserve Act
into law.
 The pros of using monetary policy 
Pros :
Interest rate targeting controls inflation
A small amount of inflation is healthy for a growing economy as it encourages investment in
the future and allows workers to expect higher wages .
Can be implemented fairly easily
Central banks can act quickly to use monetary policy tools .Often ,just signaling their
intentions to the market can yield results .
Central banks are independent and politically neutral
Even if monetary policy action is unpopular ,it can be undertaken before or during elections
without the fear of political repercussions.


  1. In order for an asset to be distinguished as “money” it has to fulfil three functions
    within the economy: A medium of exchange, store of account, and a store of value.
  2. The dollar has value because it is considered fiat money and the U.S government has
    decreed the dollar to be a valid form of money.
  3. The U.S economic money stock includes currency as well as deposits within financial
    institutions and banks that can be used to purchase goods and services.
  4. Financial institutions have two categories, financial markets and financial
    intermediaries. They both work by moving the economies scarce resources from savers
    to borrowers.
  5. Fractional-reserve banking is a term used to describe a banking system in which banks
    only hold a fraction of customer deposits as reserves.
  6. Open-markets are the tool used most often by the FED to influence the quantity of
    reserves in the economy.
  7. The money multiplier is the money a bank can generate with each dollar of reserves.
    The money multiplier is the reciprocal of the reserve ratio.


 In order for something to be considered money it must be widely accepted as payment
for goods and services, it must be acceptable by government banking institutions, it
must be easily acceptable for the trade or exchange for goods and services, and it must
be tangible (Mankiw, 2017).
 The Federal Reserve’s primary function is to regulate banking institutions, conduct the
nation’s monetary policy, maintain the stability of the financial system, monitor and
protect the credit rights of consumers, provide financial services to the United States
government, and “ensure the health of the nation’s banking system” (Mankiw, 2017).

 In fractional-reserve banking, banks are only required to hold a set minimum
requirement of their customer’s deposits on hand which, in turn, frees the remaining
amount of money so it can be lent out by way of loans (Mankiw, 2017).
 In the United States, the Federal Reserve can use the determined money multiplier
calculations to change the reserve ratios and money supply. This allows the Federal
Reserve a way to find a balance between limiting inflation and facilitating economic
growth (Mankiw, 2017).
 Monetary policy allows for the imposition of money to be created so that government
bonds can be purchased by banks and cash reserves can be increased. This leads to
lower interest rates and, eventually more money for financial institutions to lend to its
borrowers (Board of Governors of the Federal Reserve System, 2021).
 The advantages of using fiscal policy are that it can be used to reduce budget deficits,
increase domestic consumption, and combat

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