There are three types of economic systems: traditional, command and market. The US economy is mainly a market system, although there is a large command sector in the form of government and the Federal Reserve--the Fed. Command economies have a central authority that makes financial decisions.
The Federal Reserve is the central bank of the United States. It regulates other banks and financial institutions. It ensures liquidity in the money supply--meaning that it ensures that people can withdraw money from banks when they need it. It strives to control inflation--the scenario of "too little money chasing too many goods produced." So it tries to prevent the prices of goods from rising too high and it increases the money supply by printing money. It also tries to prevent recession, which is a general economic decline marked by a drop in the stock market (value and profit of companies), an increase in unemployment and a decrease in the housing market.
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