Monetary Policy
Government can impact the economy through its monetary policies. The central bank of the United States, the Federal Reserve Board, can regulate the money supply and interest rates in the country with the twin goals of stabilizing the value of the currency and controlling inflation. Through regulation the government influences the effective cost of money, thus influencing the amount of money spent by consumers and businesses. We can see that monetary policy is a very powerful tool which can be used to steer the economy in whatever direction a government sees fit.
