Write a recommendation paper of no more than 1,400 words with your team’s recommendation to the Fed about their monetary policy. In this paper, please address the following questions: How would you...

Federal Reserve: an overview
Federal Reserve, the central Bank of US, plays a pivotal role in US economy. Three main
entities constitute Federal Banking System: 12 Federal banks, Board of Governors and Federal
Open market Committee. Fed performs several functions intending to foster sustainable
economic growth, maintain price stability and generate maximum employment in the economy.
The primary role of FED is to conduct the monetary policy depending upon the state of the
economy. The key aim of the monetary policy is to maintain the sound health of the economy,
generate maximum employment and to promote stability in US financial system. Fed helps to
maintain the economic stability through changing the money supply in the economy
(Federalreserve.gov, 2013).
Tools and Functions of Fed:
Fed use three key tools for its policy formulation: open market operations, reserve requirements
and discount rate. With the help of these tool, fed conduct the monetary policy and changes the
money supply in the economy. As a consequence, interest rate changes with its obvious impact
on aggregate demand. Thus Fed indirectly influences the movement of aggregate demand
through changing the money supply accordingly. For example, when the economy fails to
produce potential output, Fed conducts expansionary policy and increase the money supply. An
increase in money supply reduces the interest rate, boost the aggregate demand (through
stimulating investment and consumption expenditure) and eventually it would help to
idge up
the recessionary gap. In contrast, in order to cool down the overheating economy, Fed conducts
contractionary monetary policy and reduces the money supply. Thus Fed can control the
inflationary pressure through pursuing the contractionary monetary policy. Though monetary
policy is recognized as the most important function of Fed, it also performs other major functions
that include financial services and banking regulations. Fed has the responsibility to issue coin
and paper cu
ency. Fed acts as a banker bank as well as government’s bank. Fed’s ultimate goal
is to ensure the safety, efficiency and stability across the financial system of the nation
(Voanews, 2011).
Limitations:
Though fed conducts monetary policy to stabilize the economic fluctuations, but still there is a
oom for concern. But the outcomes are not as good as Fed expected .Despite the expansionary
monetary policy, there is no assurance of economic recovery. For example, during the last severe
economic recession, Fed’s unprecedented monetary stimulus were not able to generate a rapid...