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The official should keep in mind this when attending the first committee meeting that there is a direct, albeit ambiguous, relationship between the growth of the money supply and the level of prices as well as a direct relationship between the growth of the money supply and GDP growth.
The amount of money in the financial system can be increased or decreased by central banks through a variety of techniques. Monetary policy is the term used to describe these acts. Although the Federal Reserve Board, also known as the Fed, has the authority to manufacture paper money at its discretion in an effort to boost the economy's supply of cash, this is not the method employed, at least not in the United States. All domestic monetary policy is governed by the Federal Reserve Board, which is the organization responsible for overseeing the Federal Reserve System. They are frequently referred to as the American Central Bank. As a result, they are typically held accountable for regulating both short-term and long-term interest rates as well as controlling inflation.
- To increase or decrease the amount of money in the economy, central banks employ a variety of techniques known as monetary policy.
- By decreasing the reserve requirements for banks, which enables them to lend more money, the Fed can expand the money supply.
- The Fed can reduce the amount of money in circulation by increasing the reserve requirements for banks, on the other hand.
- By reducing (or increasing) the discount rate that banks pay on short-term loans from the Fed, the Fed can likewise change the short-term interest rates.
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