Monetary Policy

In exploring monetary policy in the United States, it is essential to define what is meant by monetary policy. Monetary policy can be defined as the policy decisions and actions by the Federal Reserve System (Fed) that affect the banking system and money supply. This may seem vague, but by decisions and actions, we mean the goals, tools, and targets of the Fed. In the following paper, I will look at monetary policy, "under a …

…have a lot of funds and lending capacity, the rate is low; the rate is high when the banking sys-tem has drawn its reserve close to the required level. The rate is also readily observable and continuously available because the market for fed funds is large and active. The Fed targets the fed funds rate by its open market operations. The Fed can therefore exert a great amount of control over this target. The rational