Question

Should the Federal Reserve System control the nation's money supply? Defend your position using economic principles.

Answer 1

Federal reserve has been given a macroeconomic goal of achieving price stability and employment generation. To achieve this aim, it must be empowered to influence the economy in some way or the other. Using the nation's money supply, the federal reserve is able to influence the economic activity in the economy. Government is accused of using the political business cycle for gaining election momentum. If the control over the money supply is left to the government, it will use it for political motives instead of using it for the economy. Due to this reason, federal reserve system is given the responsibility of controlling the nation's money supply so that its political use is prevented.