Purpose of the Monetary and Fiscal Policies in America :: Economy

Purpose of the Monetary and Fiscal Policies in America The Monetary and Fiscal Policies, although controlled by two different organizations, are the shipway that our economy is kept under control. Both policies have their strengths and weaknesses, some situations favoring use of both policies, but most of the time, only one is necessary. The monetary policy is the identification number of regulating the money supply by the provideeral Reserve Board of Governors, currently headed by Alan Greenspan. One of the main responsibilities of the Federal Reserve System is to ordinate the money supply so as to redeem production, prices, and employment stable. The Fed has three tools tomanipulate the money supply. They are the defend requirement, open upmarket operations, and the tax write-off rate. The most powerful tool available is the reserve requirement. The r eserve requirement is the percentage of money that the bank is not allowed to loan out. If it is lowered, banks are required tokeep less money, and so more money is put out into circulation (theoretically). If it is raised, then banks may have tocollect on some loans to meet the new reserve requirement. The tool known as open market operations influences money and credit operations by buying and selling of government securities on the open market. This is used to control overall money supply. Ifthe Fed believes there is not enough money in circulation, thenthey will buy the securities from member banks. If the Fed believesthere is too much money in the economy, they will sell the