Question

the us federal reserve is independant from the Governement. Do you think this independance exacerbates or helps mitigate the budgetary problems of the federal Government? explain/draw a graph

Answer 1

The Federal bank is indeed different from the Government in most countries. The Federal bank directly controls the functioning of commercial banks in the United States by setting in policies which change the supply of money into the economy. It serves as a banking regulatory and helps banks in making sound financial decisions.

In my opinion it is extremely important that this arrangement of the Federal Bank in which it is independent to the government is both necessary and a boon for the economy.

The Federal bank regulates the supply of money which is important for the government as much as for the economy. Governments are known to be political in their approach when deciding about markets and factors such as taxes and revenue collection.

If the arrangement which allows Federal banks to be independent is reviewed and abolished at any time, this would promote a culture wherein interest rates are changed for political gains. This is bad for any economy as it alters market interests and helps only a handful of people in any country.

Thus, for maintaining financial stability and ensuring that political issues do not form the basis for economic decisions in the economy, autonomy of the Federal bank is important.

Governments would easily alter interest rates if they were in control and would favor a handful of people. This could cause economic instability and which is why the Federal banks are kept autonomous and away from government control.

Please feel free to ask your doubts in the comments section if any,