Monetary Policy in the US

Monetary policy is regulating of the amount of money in the economy for the purpose of reducing the challenges of inflation and unemployment and securing the business cycle (Amos-Web, n. d.). The main objective of money policy is to maintain the economy healthy and flourishing. In the past, monetary policy was implemented by regulating the amount of paper currency.

Currently, monetary policy in implemented by regulating the money creation process. The Federal Reserve System (Fed) in the US has three tools that it can use to control the money creation process and the money supply. These are open market operations, reserve requirements, and the discount rate (Wells, 2004).

Haven’t Found The Relevant Content? Hire a Subject Expert to Help You With
Monetary Policy in the US
Post Your Own Question And Get A Custom Answer
Hire Writer

The open market operations are incredibly accurate and simple to execute. When using it, the Fed either buys or sells Treasury bonds. The trading affects the quantity of excess reserves available for banks to give out as loans. When the Fed buys the bonds, banks benefit by having sufficient reserves that they can give out as loans at lower interest rates. This encourages public borrowing and, therefore, raises the amount of money in the economy.

On the other hand, when the amount of money in the economy is too much, it uses the same tool to reduce the amounts. It sells Treasury bonds to withdraw the excess money and, therefore, leaves banks with fewer reserves that they can use as loans.

Due to the reduction of the money at the banks’ disposal, the banks react by increasing the rates of interest on loans that they give to the public. The increase in interest rates discourages borrowing and, therefore, leads to decrease in money supply in the economy (Wells, 2004).

The Fed also uses the discount rate as a tool to keep the economy stable and flourishing. It can increase interest rates it charges banks for borrowing reserves. If it increases the rates, banks retain limited reserves for trade. Further, it can increase charges on interests to make more profit. This discourages borrowing and reduces money supply in the economy. Fed can also lower the discount rate and give banks the opportunity to borrow more reserves.

The banks can utilize the reserves to give out loans at more affordable rates and increase money supply in the economy (Wells, 2004). Fed often uses changes in the discount rate as an indicator for monetary policy actions.

The last monetary tool that Fed uses is reserve requirements. It sometimes adjusts the reserve ration, which is the proportion of reserves that banks are permitted to keep as outstanding deposits. The ration affects the amount of reserves that can be in the custody of banks. The Fed can either lower or increase the reserve requirements.

If it lowers the reserve requirements, banks have access to more reserves and can give out more loans at lower interest rates, therefore, influencing banks to lower their interest rates. As banks lower interest rates, money supply in the economy also increases. This encourages investment.

On the other hand, the Fed can reduce the money supply if the amount in the market is unhealthy for the economy (Amos-Web, n.d.). If it raises reserve requirements, banks encounter stiffer regulations and use existing reserves to make fewer loans at higher rates. The reduction in the borrowing rate leads to the decrease in the money supply.

The Fed seldom use reserve requirements. However, it can use any of the three tools to control money supply (Amos-Web, n.d.). By controlling the money supply, the monetary policy manages the levels of inflation and unemployment. As a result, a secure economy is developed in which savings and interests occur.


Amos- Web: Economic Encyclonomic. (n.d.). Economics with a Touch of Whimsy. Web.

Wells, D. R. (2004). The Federal Reserve System. Jefferson, N.C.: McFarland & Co.

Why Hire a Professional Essay Writer from MyHomeworkGeeks

Quality Urgent Essays

Domyhomeworkk online platform provides the best essay writing service ever received elsewhere, thanks to our professional essay writers. Experience gained in the 10+ years of being in the assignment writing industry is also an added advantage.

Professional and Experienced Academic Writers

A lot is done to maintain us as the best essay writing service provider. Besides owning a degree from a recognized university, a writer must pass the rigorous tests we take them through before they are considered eligible to offer urgent essay help on our website.

Affordable Urgent Assignment Help

Who said a reliable website should not be cheap also? While it is human nature to associate prices with quality, that does not always work. At, we guarantee you cheap and urgent essay help without compromising the quality.

24/7 Available Urgent Essay Writing Service

Whether it is a ‘write my essay for me cheap’ or ‘edit my essay’ order you want to request, always feel free to reach us at any time of the day. Our experts work in shifts to ensure that you access urgent essay writing services at any time of the day.

Plagiarism Free Essays Online

The punitive measures that come with plagiarized content are so harsh, and we understand that. We consequently ensure to write each client’s papers from scratch no matter how urgent the essay is. To acknowledge borrowed content, our quick writer references and cites the work.

Wow Customer Support 24/7

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

So much stress and so little time? Take care of yourself: let us help you with your tasks. We offer all kinds of writing services.


Custom Essay Writing Services

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.


Admission and Business Papers

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.


Editing and Proofreading

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.


Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.

Have a homework question? Get help from verified tutors now!