ABSTRACT
This chapter considers the Federal Reserve and monetary policy as a possible solution to macroeconomic instability. The Federal Reserve System, often simply called the Fed, is the central bank of the United States. It was legislated by Congress and signed into law by President Woodrow Wilson in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Fed's structure was designed by Congress to give it a broad perspective on the economy. At the head of the Fed's formal organization is the Board of Governors. The organization of the Fed also includes the Federal Open Market Committee and three advisory councils. The Federal Reserve's stockholders are commercial banks that are members of the Fed. The Fed's main responsibility is to formulate and implement monetary policy, which is conducted by changing the economy's money supply in order to help the economy achieve maximum output and employment, as well as stable prices.
