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How do we control the money supply

The US Federal Reserve is an organization charged with controlling inflation and maintaining high employment levels by controlling the money supply.

We need to give the Federal Reserve a new, more powerful tool to deal with inflation - the power to adjust a National Sales Tax.

In the USA, The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States. The Federal Reserve System has the responsibility of conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.

Controlling the money supply:

Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply.

• The discount rate is the interest rate that the central bank charges commercial banks that need to borrow additional reserves. It is an administered interest rate set by the Fed, not a market rate; therefore, much of its importance stems from the signal the Fed is sending to the financial markets (if it's low, the Fed wants to encourage spending and vice versa). As a result, short-term market interest rates tend to follow its movement. If the Fed wants to give banks more reserves, it can reduce the interest rate that it charges, thereby tempting banks to borrow more. Alternatively, it can soak up reserves by raising its rate and persuading the banks to reduce borrowing.
• A change in reserve ratio is seldom used but is potentially very powerful. The reserve ratio is the percentage of reserves a bank is required to hold against deposits.
• Open-market operations consist of the buying and selling of government securities by the Fed. If the Fed buys back issued securities (such as Treasury bills) from large banks and securities dealers, it increases the money supply in the hands of the public. Conversely, the money supply decreases when the Fed sells a security.

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