Question

Will a depreciation of the dollar correct the US trade deficit?

The paper should include the following:

1. Introduction–what is the question you are addressing? What are the main issues? Give the reader a quick summary of what you will explain.
2. Body
   1. Brief discussion of the text book view: the IS-LM-BP floating rate model which relies on this corrective mechanism.
   2. Does the real world evidence support the textbook view?
3. Conclusion – summarize your findings and answer the question.
4. Bibliography (use the citation style you are most familiar with)

Additional source:

1. “Why a dollar depreciation may not close the US trade deficit,” Goldberg and Dillon.

Answer 1

Can fed control money supply?

Introduction

Federal reserve system is responsible for the supply of money in the economy. By following various monetary tools and policy its the responsibility of fed to maintain and keep the money supply stable in the economy .

Functions of the Federal Reserve System include addressing the problem of banking panics, serve as the central bank for the United States , striking a balance between private interests of banks and the centralized responsibility of government , to supervise and regulate banking institutions .To maintain the stability of the financial system and contain systemic risk in financial markets .To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.

Body .

monetary policy tools

Fed controls the money supply by increasing or decreasing the monetary base .Usually it uses purchase or sale of securitites .They majorly target fund rates .The goal is to ensure appropriate supply of monetary base so that the economy does not fluctuate and follow a stable growth path .