Monetary PolicyDoes monetary policy cause more problems than solutions? Controlling the quantity of money in circulation is of general importance to the economy in several ways. The Federal Reserve System (Fed) is authorized to develop monetary policy to control the rate of inflation, regulate the conduct of business, and control the economy through consistent economic growth by the U.S. government. According to Taylor (2011), “Monetary policy involves altering the quantity of money and thus influencing the level of interest rates and the amount of lending” (p.310). Furthermore, there are two different monetary policies which are expansionary monetary policy and contractionary monetary policy. The Fed normally applies three methods to influence any monetary policy. The three methods are reserve requirements, open market operations and the discount rate. Open market operations are the Fed's primary approach. However, it is questionable whether monetary policy is more beneficial than detrimental to the economy. Monetary policy can cause problems, but it is generally a solution to many problems. Therefore, monetary policy can solve the problem of recession, inflation, unemployment and stability of the economy. In Dudley's article, monetary policy can be used to solve the recession problem (2013). The recession is the example that only a small amount of money is in circulation, so the Fed increases liquidity. This helps control interest rates on bank loans. This approach to market operations focuses on controlling liquidity in the market. The control mechanism basically involves the buying and selling of US Treasury securities. In the event of a recession, the Fed applies expansionary measures... middle of paper... to curb the recession. Monetary policies also help maximize the utilization of labor force in the country by ensuring that unemployment rates are kept at a minimum. The use of bank interest rates is intended to ensure that the economy is stable and that there is constant growth. Although monetary policies pose a number of problems in their implementation, their objectives far outweigh the problems. Furthermore, most problems can be adequately addressed through other policy initiatives put in place. Works Cited Dudley, W. C. (2013). The economic prospects and the role of monetary policy. Retrieved April 21, 2014, from http://www.newyorkfed.org/newsevents/speeches/2013/dud130325.htmlPotter, S. (2013). Recent developments in the implementation of monetary policy. Retrieved April 21, 2014, from http://www.newyorkfed.org/newsevents/speeches/2013/pot131202.html