Finance, Forex and Investments

How does the government or rather the central bank controls the economy?

I believe they do this by two ways: first, they set the reserve requirement; and second, they set the interest rates. If they want to accelerate the economy they lower the interest rates and lower the reserve requirement, which in turn augment the money supply. Am I right?

Public Comments

1. your quite right in what the govt does ,BUT what actually happens is controlled by the world markets . And at the moment they are in the worst mess we have ever known. No one trusts bankers or govts any more, You work it out.
2. Yes, this is two primary ways in which the central bank tries to stimulate economic growth. This is called monetary policy. Now, when you say 'government or rather the central bank', they are not the same thing. The central bank is independent from the government. If the government was to try and manipulate the economy, they would do this by fiscal policy. Fiscal policy means either increasing or decreasing government spending and taxes. For example, in the new year Barack Obama wants to lower taxes on 95% of Americans and increase government spending in order to stimulate the economy. The ways that the government and the central bank try to regulate the economy are different to each other in the ways that I have described. Hope that helps.
3. You are right. so you can see how simple and stereotyped they have been in managing the economy and the people in the economy. and that was why they could not fix the problem at the early stage of the sub prime crisis. they simply don't deserve to get paid for their useless mechanic work..the economy is not a machine, but a live animal. these guys treated it like a machine, a dumb mechanic one, even not computerised. ain't I right?