Question

*Answer will need to be original and not copied from a prior post*

While the Federal Reserve is an independent entity, it is still subject to the political process. In an extreme case, the U.S. Congress could rewrite and pass laws that govern how the Federal Reserve does its job.

Identify a potential change (for example, targeting interest rates or targeting the balance of the money supply in the economy) you would make to how the Federal Reserve operates and explain why you would change it.

Answer 1

Targeting interest rate must be changed from the aim of stabilising economy in terms of inflation to targeting interest rate to stabilise and generate employment in the economy. Inflation is not a bigger problem when the population is fairly employed. Inflation hurts more when a large population is unemployed. So the Fed must target interest rate so as to generate employment opportunities in the economy. This should be changed because if we target money supply then in long run the economy will move back by raising people’s ability to hold the increased money at the given rate of interest.