Question

In: Economics

Should the Federal Reserve System control the nation's money supply? Defend your position using economic principles.

Should the Federal Reserve System control the nation's money supply? Defend your position using economic principles.

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Expert Solution

Federal reserve system is established to give the stable financial system in the country. It is America's central bank which performs various functions to protect the financial stability of the economy. It conduct monetary policy, provide supervision to other banks and performs various function to provide stability in the financial market in the country. Money supply is control by the Federal system to protect the economy from the inflation and deflation scenarios. Economic principle of demand and supply is also worked in economy when it comes to Demand and supply of money. Higher supply of money leads to higher purchasing power and creates inflation in the economy and less supply of money leads to recession and deflation. To keep control over the various negative scenario of the economy Federal system performs various monetary policy. Interest rate and Reserve ratio is increased by Federal system to check on the inflation and vice-versa. it is an central body of the economy which associated with the every policy and decision taken in relation with the financial scenario of the economy. Hence for the better management of money and its supply effects in the economy Central bank should have control on the nation's money supply.


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