Monetary and Fiscal Policy

Reserve requirement, Federal Open Market Committee, Interest

Monetary and Fiscal Policy - Working Together
Monetary and Fiscal policy are important to every economy. The Federal Reserve and Government are in charge of monetary and fiscal policy respectively. The Federal Reserve has three tools to control monetary policy: open market operations, reserve requirements, and the discount rate. The Government is in charge of fiscal policy and uses taxes and spending as tools to change policy. Monetary and Fiscal policy are adjusted when signs of inflation, deflation, stagflation or hyperinflation start to arise or are in full swing. Monetary and Fiscal policy matter to everyone because they affect everyone.

Monetary and Fiscal policy are important to every country and every economy. When changes to these policies are made everyone is affected because we all use money. The authorities in place do their best to maintain a balance in the economy where there is growth, but not too fast or too slow. The decisions that are made through monetary and fiscal policy direct and persuade people to act a certain way with their money (either keep or spend it) to help the economy stay as stable as possible. In the United States the Federal Reserve and the Government try to make these decisions with people’s best interest in mind. The goal of monetary policy is to keep unemployment low, inflation low, encourage economic growth and keep a balance of external payments (Financial Pipeline, n.d.). According to the Federal Reserve website, “The term "monetary policy" refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals” (Federal Reserve n.d). The Federal Reserve (“Fed”) is the authority over monetary policy. There are seven members that make up the Fed board, and constitute the majority on the Federal Open Market Committee (FOMC). The FOMC is comprised of twelve people all together; the...
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