Monetary Policy And The Federal Reserve Regulating The Size Of The Money Supply

816 Words Dec 3rd, 2014 4 Pages
Monetary policy affects every single person in America, yet it is something that only few people actually take into consideration. Even though monetary policy is something that contributes so much to the health of our economy, many people, including myself, do not even have a clue as to what it is or its purpose. In this paper monetary policy will be defined, the great recession will be discussed, and Federal Reserve policies and actions will be identified. These components will help to justify and support the notion that the current monetary policy is successful.
In America, monetary policy is defined by the actions of the Federal Reserve that regulate the “size and rate of growth of the money supply” (Investopedia). The major purpose of the Federal Reserve regulating the size of the money supply is to ensure price level stability, full employment, and economic growth. Without the monetary policy in place, the American economy would suffer.
Price level is one of the key components of monetary policy. According to William Poole and David Wheelock, “price [level] stability is a low and stable rate of inflation maintained over a period of time”. It is interesting to realize that price level stability is defined by low inflation instead of zero inflation. This means inflation in moderation is, in fact, necessary for a healthy economy. An economy without inflation diminishes the purchasing power of our dollar. Though a small amount of inflation is necessary, too much can lead…

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