The Federal Reserve
Most ordinary folk do not think of money as a tool. Yet it is the most important tool that we have. Money is the means by which we improve or decrease the quality of our lives. We all need money to survive but money can also be the tool that allows us to live well. One of the greatest stress relievers is to have enough money to pay our bills. Having a bit extra to save will certainly help us to sleep a whole lot better at night. In much the same way that money is what keeps our lives afloat it also does this on a much broader scale. Money is also what keeps the economy of a whole country stable. If you understand how this is managed then you will be able to pick up the opportunities as well as the risks that may crop up in time. If you know this you will have a far better chance of making the right financial decisions in your personal life.
There are two very powerful organizations that manage the money within a country. These two are the Federal Reserve Bank and the Federal Government. There is a process entailed in how this is carried out and it is called the fiscal policy. This process of the control of money by the Federal Reserve Bank is known as the monetary policy. The whole economy is managed with the use of these tools. Understanding the economy is not too complicated for the man in the street. In fact, he could benefit greatly by knowing more about how money works. For people who want to go into business for themselves it should be mandatory because it will assist them in making decisions that will benefit them.
It is how much or how little the government spends and its policy on tax that keep the fiscal policy manageable. It is the tax policy that is responsible for the money supply. Tax will make the money flow more or less. This of course gives the government a choice in how it is going to deal with the money supply. It can either increase or decrease the tax rate. What is known as a liberal tax policy is one that lowers the tax rate. This gives the citizens more money to spend. If the government decides that it must hike up the tax rate then this slows things down. This is because the citizens of a country will have less money to spend. This is how the economy within a country is controlled. Rates affect almost every part of the economy including the prices of goods that citizens pay for. A tax refund is what every good citizen hopes for. If you get one then you immediately have a lot more disposable income. The more disposable income you have the greater is your power to purchase. It is entirely up to the individual just how much he wants to spend. Even luxury goods would not be out of reach.
In order for a government to confirm the money supply it must choose to exercise a no tax refund or increase taxes. If the tax rate goes up then the buying power of citizens will decrease because a bigger portion of their income is used to pay taxes. This will result in less money coming into the market. This has an impact on the businesses that will now have to do without the money it would normally have from these consumers. These businesses have only choice – they have to lower the prices of their goods or services. They have to resort to this in order to attract consumers. It can be seen that there is a knock on effect right throughout the economy simply by the Federal Reserve Bank adjusting the tax rate and the government approving it.
There is another means of determining the money supply as well as controlling it. It is the government that is responsible for checking up on the money supply. The government has to lower its own spending or it has to spend money