Economic business cycles tend to follow a 4-7 year time line from one recession to another. The U.S. government has two primary means of dealing with the business cycle:fiscal policy and monetary policy. Fiscal policy is concerned with taxes and government spending, both of which are controlled by Congress. Monetary policy is concerned with the money supply, control of inflation, and the granting of credit. The Federal Reserve System (Fed) is the primary manager of monetary policy.
Consider the following scenario:
Fortas Bank is reviewing its credit policy and has asked you to review the various ways that the Fed can affect the granting of credit in the economy. Write a 250-word response that addresses the following questions:
- What are some the various ways that the Fed can affect the granting of creidt in the economy?
- Make sure to address the following:
- reserves
- margin requirements
- moral suasion