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Monetary Policies
The simulation game was exciting as playing it helped me to understand the effect of
Federal Reserve’s policies on the economy. Central to the game was either increasing or cutting
spending both of which affected inflation and employment differently depending on the
prevailing market conditions.
When the Federal Reserve increases spending in order to grow the economy, the likely
effect is inflation. As a result of inflation, the prices of products in the market skyrocket making
the cash worthless in that its purchasing power decreases and an individual has to use more cash
to buy a product which was less costly before the inflation (Maathai par.2). In response to
inflation, the Federal Reserve can reduce spending through reducing prices of bonds while
increasing the interest rates (Investopedia par.1). Although there are many ways to control
inflation, wage and price controls are, however, not good approaches as they tend to create
recession which results in job losses, and as a result, the unemployment rate goes high
(Investopedia par.3). Consequently, competence in monetary policy control on the part of the
Federal Reserve Chairperson and members of the board is critical in ensuring the growth of the
economy while keeping inflation and unemployment rates low.
The inability to predict the future or the emergence of unforeseen circumstances can
cause havoc on the economy since the government is unable to adjust asset rates in a timely
manner. In the Federal Reserve game, it was impossible to anticipate the unforeseen
