Question

1) Who is responsible for U.S. monetary policy and what are the roles of the Federal Reserve (the Fed), Congress, and the president?

2) What role does the Fed play in our national debt and federal deficit?

3) How is our fiscal policy going to affect future generations?

4) Does government borrowing crowd out private-sector spending? Explain.

5) Do households generally make a distinction between spending for current expenses and spending for capital expenses? Compare borrowing $5,000 to take a vacation in Hawaii with borrowing $125,000 to buy a condominium and move out of your rented apartment. Explain.

6) Critics of “new accounting” for federal borrowing argue that it does not matter what the government spends the money on. What matters is the total amount that the government spends minus taxes collected. Explain this viewpoint.

Answer 1

Question 1
The Federal Reserve(Central Bank) is responsible for the United States monetary policy. Specifically speaking, the Federal Open Market Committee(FOMC) decides on how to set the monetary policy.
Role of the Fed :
The Federal Reserve uses reserve requirements, open market operations, interest rate on reserves and the discount rate charged by Fed to commercial banks for short term lending to control monetary policy. It also has two(2) other functions - A)Supervising banking in the country, B) Managing financial services.

Role of the Congress :
The congress sets the goals and objectives related to monetary policy that the Federal Reserve sets out to achieve, viz. Stability in prices , employment levels to be maximum and long-run moderate interest rates.

Role of the POTUS(president) :
The board of governers(or the Federal Reserve Board) which takes the ultimate decisions in setting monetary policy for the nation, have seven governers who are appointed personally by the President of the United States after approval from the Senate for a 14-yeart term to ensure stability.