Learning about the Federal Reserve System

Unlike other cases in this text, this case requires you to gather the facts and figures. Consult The Wall Street Journal or other business publications to see how the Federal Reserve System is managing the economy. This is an important exercise because few people know much about the Federal Reserve.

The Coalition for Monetary Education conducted a random survey of 2,000 people to see what they knew about the Federal Reserve and monetary policy in general. Only about 1 percent (some 20 out of 2,000) understood the monetary basics. Over 75 percent of the respondents knew that the Federal Reserve's board of governors controlled the money supply, but only 9 percent of those polled were aware that the Federal Reserve's policies influenced the inflation rate, and only 13 percent were aware that the Fed's policies affected interest rates.

Only 31 percent of the people knew that U.S. dollars aren't redeemable in gold or silver. Less than 30 percent knew that S&L failures were once widespread. Reacting to these findings, the coalition planned a campaign to educate the public about the effects of federal policies on banking.

1			How do the Federal Reserve's policies affect interest rates and the inflation rate? Why is it important for people to know that?
2			What action, if any, has the Federal Reserve taken in the past year to control the money supply and inflation? What are the results? (The answer to this question can be found in past issues of The Wall Street Journal.)
3			Go back to Chapter 2 and read about fiscal and monetary policy. Which seems to be having the greater effect on the U.S. economy today: monetary policy or fiscal policy? Why?