The US Federal Reserve System is responsible for conducting the country's monetary policy, which primarily focuses on managing inflation rates and interest rates through adjustment of the money supply.

By significantly increasing the size of the money supply, the Fed can lower short-term interest rates and stimulate consumption, thereby causing the GDP to expand. Such an expansionary monetary policy is sometimes necessary to create jobs and get investment capital flowing. However, low interest rates and stimulated consumption often lead to inflation, which ultimately results in higher long-term interest rates.

By significantly decreasing the size of the money supply, the Fed can raise short-term interest rates and discourage consumption, thereby causing the GDP to contract. Such a contractionary monetary policy is sometimes necessary to fight inflation.