The Federal Reserve Bank - Essay Example

The Federal Reserve Bank is responsible for establishing monetary policy in the United States. The current chairman of the Fed is Ben Bernanke. Due to the influence the Fed has on the US economy it is important for business students to learn about the Federal Reserve. In order to be exposed to the type of decisions the Fed has to make on a daily basis the website of the Fed has a game called “Fed Chairman Game.” The objective of the game is to be reelected chairman of the Fed. To win the game you must ensure that unemployment is below 4% and unemployment is below 7%. The purpose of this paper is to discuss the results of the “Fed Chairman Game.”

In the game, the player must choose the fed interest rates for a period of four years or 16 quarters. The player must keep inflation and unemployment below 4 and 7 percent respectively. The logic that must be used to make a decision is that you can lower inflation by setting federal funds well above the inflation rate, but doing so will also push unemployment upwards. You can lower unemployment by pushing up inflation by setting the federal funds rate close to or below the inflation rate. Throughout the game after each decision, there is a newspaper headline that reports what is occurring in the economy based on the Fed decisions. The news must be used by the player in order to make decisions. The table below has a list of some of the newspaper headlines that I saw during the game.

Inflation rising: Fed expected to raise

Rising inflation fears: experts say interest rates to go higher

Fed raises funds rate: current policy still encourages expansion

Economic reports OK, but some reports of rising inflation

Extra millions get tax relief big refund: checks trigger spending spike

Retail spree continues: Fed expected to tighten to restrain economy

Renewable power surge: new energy source triggers price drop

Oil prices falling: Fed expected to ease as inflation declines

Energy turmoil easing, but U.S. economy still struggles to recover

During the simulation, I utilized the news as a point of reference to make decisions. I had to look at the impact my decisions had on inflation and unemployment at all times. The actions that I took to get reelection were geared at maintaining the general public happy. I ran the simulation three times and I was not able to get reelected. The job of the chairman of the Fed is very hard. During the first two runs, I was not able to keep inflation low enough to get reelected. During the third run, I messed up as far as having negative inflation or deflation. I learned from the simulation that monetary policy is extremely important for the well-being of the United States. People are happy with their government when there are jobs available in the marketplace and when their money has good purchasing power. Inflation decreases the purchasing power of the US dollar.