Question

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

minimum 250 with sources pls

Answer 1

Yes, Federal Reserve and System which is normally know as Fed is a central bank in the America. The Federal Reserve and System chief mission was to watch over the country's monetary or credit system to hold up the ongoing process of United State individual-banking system.

Explanation:

The Federal Reserve should do this through activities that regulate the money in the hands of both households and firms in the economy. They have the ability to increase inflation and lending rates in a Nation. Tools like discount rates, open-market operations and reserve ratios should be used.

The system of Federal Reserve should regulate money supply in the economy to regulate short as well as long term rates of interest. By changing the federal requirements through reserve ratios held by commercial banks at the federal reserve, it are able to influence the amount lend by banks to individuals and firms and thus the lending rates of the banks.

When the money supply is high is the economy, the Federal Reserve can control the money supply by increasing banks reserve ratio. This reduces money to be loaned out, banks increase lending rates that reduces households and firms consumption as they consider the principle of cost and benefit.

The federal system should regulate the supply of money in a nation to regulate liquidity in the banks through discount rates which affect inflation. The Federal Reserve does this by regulating the short term discount rate for banks borrowing from the reserve.

The system of Federal Reserve should control the amount of money held by securities dealers through open-market operations which control the money markets. It helps control and improves the economic outcomes as well as markets.

Since the economy principle of markets and coordination of trade exists, the Federal Reserve can affect a market rise and market downturn, by affecting money available for immediate use.

In addition, Fed's dealings affected the profit rates banks charge organization and consumers, assist in keeping inflation under managed, and eventually stabilizing the America financial system. Although, Fed functioned as self-governing entity it derives all power from Congress except making critical decisions was to be approved by the president of Congress or another government branch. Though, Congress does occasionally review the Fed's tasks, and it was a must for Fed to work inside the economic framework recognized by the government.

Initially, Fed was built to manage the cash supply, act for borrowing resource for banks, supporting deposits of associate banks, and other supervise banking activities. Its practice was broadened, making Fed the main powerful financial organization in the America.

Fed was also to control the inflation to prevent U.S. economy demand from products driving up their prices. To manage inflation, Fed has to utilize restrictive monetary policy for reducing economic growth as the ideal economic expansion rate is among 2%-3%.

The Fed may reduce this growth with tightening the cash supply (Carbaugh, 2016). That's full amount on credit permitted into a market. The Fed's proceedings slow the liquidity of the monetary system, making financial becomes very expensive to acquire loans hence reducing economic expansion and demand that puts downward heaviness on prices.