Series 3: 6.1.6.2. Supply: The Federal Reserve And Monetary Policy

6.1.6.2. Supply: The Federal Reserve and Monetary Policy

While fiscal policy is conducted by the national government, monetary policy is conducted by the central bank. Fiscal policy manages the growth of the national economy through its budgetary and taxation policies. Monetary policy manages the money supply by buying and selling securities in the secondary market, manipulating the bank reserves, and modifying the discount rate.

In most countries, monetary policy is created and executed by an independent central bank. In the United States, that institution is the Federal Reserve System. Commonly known as “the Fed,” the Federal Reserve Sys