Monetary Policy

According to Hubbard, in the book Money, the Financial System, and the Economy, money is anything that people are willing to accept in payment for goods and services or to pay off debts (p.7). The money supply, however, is the total quantity of money in the economy (p.7). In order to keep track of the amount of money in circulation within the economy, the Federal Reserve System was put in place. The Federal Reserve System (or The Fed) is the central bank of the United States. Furthermore, The Fed tries to manage the money supply by implementing monetary policy. “Monetary policy refers to the management of the money supply and its links to prices, interest rates, and other economic variables” (p.8). Monetary policy can either be expansionary or contractionary. Expansionary monetary policy usually increases the money supply, whereas contractionary monetary policy usually decreases the amount of money in circulation. This article will touch on both expansionary and contractionary monetary policy, with reference to two recent news articles.
The Federal Reserve official website (www.federalreserve.gov) released a press release on January 27 about the Federal Open Market Committee (FOMC). The article included information about the current state of the economy and other measures that will be put in place to help further improve economic conditions.   The article stated that
Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls” (Press Release).
This is where expansionary monetary policy would be implemented. There is need for more money to be injected into the economy. As more money is injected into the economy consumer spending is increased, production is increased, and investment is also... [continues]

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