Question

Explain the importance of monetary policy in helping an economy to thrive and grow. How does having a system of deposit insurance (FDIC) help the US monetary system to be more stable? In comparing the US to Venezuela, how does having an independent central bank help keep inflation under control?

Answer 1

Monetary Policy

Monetary policy is the set of policies which are controlled by the central bank of any country as in America.

For an economy their are many challenges which are to be fought carefully and flawlessly or there are chances of an economic collapse as happened in The Great Depression period. For the maintenance of trust in the banking system of the country by the people of country America has decided to invent the insurance on the deposits (FDIC) which has been proved a major factor in getting a bank oriented economy. For the best regulation of the monetary policy it was important to win the public trust on the banking system only after which the best outcomes of monetary policies were seen.

The existence of the independent central bank being a regulatory body over the whole banking system plays a crucial role in working of monetary policy. in the situation where the regulatory body does not have the authority over delegation the work cannot be finished, same way when the policies made by the central bank are not obligatory the commercial banking in the banking system will still be indulged in maximizing their profit which is unhealthy to the economy. Like Venezuela if the central bank will not have influence over the commercial banks the dollar will also go down like Venezuela Bolívar.