What does the Fed do when it wants to increase or decrease the money supply?
106491
Raises taxes or lowers taxes.
435918
The amount of cash banks have determined by three variables.  The first is required reserves.\n\nThe Required reserves of money that banks must hold in order to satisfy customer needs.  This is determined by a government agency called: The Federal Reserve or 'The Fed'.  \n\nFor example if the Fed sets the required reserve rate at 20% then banks will have to hold 20% of all deposits.  So if someone deposits $100 and the required reserve is 20% then the bank will have to hold $20 to be available for withdrawal on demand.  100 x .20 = 20\n\nThe second variable that determines how much banks hold is the: \n\nDiscount Rate [the interest at which the Fed loans banks money if they accidentally run below their required reserves] \n\nAnd the: Federal Funds rate: [the rate at which the Fed mandates that banks loan each other money]\n\nIt's profitable for banks to make loans but they don't want to fall under their required reserves otherwise they'll have to borrow money and that gets expensive.  \n\nSo when the Federal Funds Rate and the Discount rate are high they'll keep more excess reserves so their chances of accidentally falling under their required reserves are low and they won't have to borrow money.\n\nWhen the interest rate is low it's cheap to borrow money and banks don't have to worry about falling under their required reserves so much.  So they'll make more loans and have less money in their reserves.  Because if they run under their required reserve ratio because of unanticipated demand [a lot of people want to withdraw money] they can just take out a loan at a low rate and they won't lose too much profit..\n\nThe third variable is the Feds open market operations.  By buying or selling bonds the Fed can influence how much money people deposit in banks and interest rates.\n\nSo those three variables are primarily what determines how much money banks [large and small] have on hand.  Smaller banks are allowed to have a lower required reserve [they aren't required to hold as much money by law] because they don't have the vast resources of larger financial institutions.
387473
because when you increase the supply of the currency then you could cause a surplus in relation to the demand.  That could cause the value of the currency to drop.\n\nThink of it in terms of diamonds...if there were enough diamonds to go around so everyone would have ten of them, why would anyone pay so much for one?
488886
Inflation essentially devalues money.\n\nDuring WWII inflation in Germany reached nearly 100% per day.  People were paid daily and they spent it all on the way home because it would be worth about half the next day.\n\nThe main way I have seen inflation controlled is by manipulating interest rates.  By raising interest it costs more to "rent" money.  This has a tendency to slow most economic activity.  A slower economy will normally reduce inflation.\n\nIf you want inflation to go up, print more money.  \n\nI was on active duty with the US Air Force during President Carter's double digit inflation period.  Inflation was around 18% and we received "cost of living raises" under 2%.  We considered ourselves Uncle Jimmy's inflation fighters.  It took five or six years to get our pay back to where it was when "run-a-way inflation" took over the economy.  I hope that sort of crap never happens again.
64719
This is a really WIDE-ranging question, and it's practically impossible to give you a good answer that's practical for use. Fed Reserve prints money, essentially, "increasing the money supply" (counterfeiting) on demand. It is private, yet govt controlled. The govt simply placed it in "private hands" so they could get away with their political sleight of hand without having to worry about the Constitution. The IMF, of which the US is a member with about 17% of the clout, loans federal reserve funny money and usurious rates, then, eventually, puts anyone small (only large companies can afford usurious rates) out of business, out of house, home, food, and everything else. Ask Jamaica. The federal govt, in taking us off the gold standard, has sentenced the US to eventual economic death.\n\nGo to the web and search for Liberty Dollar. You can trade $10 in federal funny money for real silver, and $1 for silver certificates backed by real silver. If enough of us used this, we could make the US financially solvent again, over the years.
817718
Be willing to accept a lower standard of living. The expansion of the economy is due in large part to dumping the gold standard and instituting the Federal Reserve. \n\nGo back and look at the history that caused these changes.\n\nAs for the income tax, how would you propose paying for public goods?
1121290
First of all consider money as also a commodity... If there is a more need of money then the cost to get it goes up. In other words if you really really need money and you are at a lender, he may hike the interest by a point. Now conisder the case of another wealthy guy comming there to get a lot of money. Your interest rate goes up again by a point and possibly you may not get money from that lender.\n\nUS economic situation is pathetic with heavy bleeding due to foriegn military operations, reconstructions and high deficit trade with China. Now the US Goverment is itself a big borrower. When the US Govt. borrows money the interest rate goes up... This is the easiest way to explain this.  Another diamension is, to keep inflation in check the Govt has to increase the interest rate too. \n\nDue to inflation and bleading of money, US Dollar is getting weaker. If dollar becomes weaker, foriegn companies get less money back on sales. So foriegn business that sell products to America will see reduced profits. Example: Indian software companies.\n\nIs it clear as mud?
662029
inflation arises when there is surplus funds in circulation. when bank rate decreases more and more people take loans and all and then the surplus of money will be circulated among public. by adjusting interest rates government can regulate the inflation to an extent.
160084
It used to. But the United states is on a non-fiat monetary system. The gold reserve is meaningless and is not backing the money. The government is telling you that it is worth something and can be used for payments and debts.
65836
A substantial increase in inflation will diminish the purchasing power of money.  Say you kept $100 under your bed.  If the inflation rate jumped up to 10% (high), then your $100 can't buy $100 of stuff anymore.  Something that cost $100 last year would cost $110 now.  In essence, you lost 10% of your purchasing power.
293921
The simple answer is to control the money supply. Cutting rates encourages investment and stimulates the economy. Raisng rates does the opposite.
1099796
Ignoring the Bush-bashing despite how much I might like it.\n\nRepublicans nowadays are "pro-business" or basically in economics "supply-siders".  It's a view where if the means of producing things, in this case businesses, are able to produce more, it will benefit the economy with higher production and lower prices.  Now, if the minimal wage was to be increased, where is that extra money going to come from?  The pockets of business owners and companies.  This means a higher cost for them which would mean that they aren't making as much money.  Since they are not making as much money, they will make less, creating higher prices from shortages and too much demand.\n\nOn the other hand, if we did have an increase on minimal wage, it could lead to higher inflation.  Companies may want to increase prices to soak up the extra cash.  In addition, it would be up to the Federal Reserve to control the inflation.  They may choose to do so by increasing the reserve requirement, making it harder for you to get a bank loan.  They may also choose to increase the prime interest rate, increaing all other interest rates elsewhere, hurting everyone in the economy.\n\nThe economy is a fickle, little thing.
1036423
It doesn't, the Federal reserve raises rates to slow the economy to try to keep inflation in check.\n It wont work this time because bush has put us 8 TRILLION in debt! \nWhen the people buying that debt decide they don't want to buy the debt (bonds) anymore then we are SCREWED!
1158225
As interest rates go up, people start saving money and putting it into the bank.  This makes money worth more since people are not spending it as much (kinda like supply and demand).
1186929
If by expansionary you mean investing in other currencies, it would probably drive the domestic rate downwards. If a country doesn't trust its own currency why should the people?\n\nA contractionary money policy? You got me on that one. Not familiar with what that term means.
158495
Basically adjust for inflation or deflation in the money to compare the increases in waves earned from one year to another
1186322
The FOMC (Federal Open Market Committee) sells funds into the market to help speed up the economy by making it cheaper people and business to get cash.  The do the opposite to slow down the economy if they fear inflation.