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While fiscal policy developed largely from academic theory, the development of monetary policy has been heavily influenced by the trial-and-error experience of policymakers. Hence, to understand monetary policy in the present, one must explore the past.
Monetary policy is entangled in the international payments system a nation uses. We begin by looking at how the rules of international payments can limit monetary policy. We also examine how the concerns of the Federal Reserve and the way it conducts policy have evolved in a long process of trial and error. Some of those errors were huge and horrendous, and the Fed did not acknowledge them for decades. But lessons were learned, and decisions of the Fed reflect their reading of the past.
This group of readings can serve as a final chapter for an introductory course. There is additional material in the optional sections that either take students beyond what is traditional in an introductory course or explore topics from this unit in greater detail.
After you complete this unit, you should be able to: