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Effects of monetary and fiscal policy
Federal reserve bank system
Effects of monetary and fiscal policy
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Monetary Policy Does monetary policy cause more problems than solutions? The control of the amount of money in circulation is of general essence to the economy in various ways. The Federal Reserve System (the Fed) is approved to develop a monetary policy to control the rate of inflation, regulate the conduct of business and to control the economy through a steady economic growth by the government of the U.S.A. According to Taylor (2011), “Monetary policy is that involves altering the quantity of money and thus affecting the level of interest rates and the extent of borrowing” (p.310). Also, there are two different monetary policy which are expansionary monetary policy and contractionary monetary policy. The Fed normally applies three methods to influence any monetary policy. The three methods are reserve requirements, open market operations and the discount rate. Open market operations are the main approach taken by the Fed. However whether a monetary policy is more beneficial than disadvantageous to the economy is debatable. The monetary policy may cause problems, but it is generally a solution to many problems. Therefore, the monetary policy can solve the problem of recession, inflation, unemployment and stability of economy. In Dudley’s article, monetary policy can be used to solve the problem of recession (2013). Recession is the example that only a small quantity of money is in circulation, so the Fed comes into increase liquidity. This helps to control the bank lending interest rates. This market operations approach focuses on the control of liquidity in the market. The control mechanism basically involves buying and selling of securities of the U.S. Treasury securities. In case of a recession, the Fed applies expansionary ... ... middle of paper ... ... to curb recession. Monetary policies also help in maximum utilization of labor force in the country through ensuring that unemployment rates are kept at a minimum. The use of the bank interest rates are meant ensure that the economy is stable and steady growth is registered. Even though monetary policies come with their own share of problems in their implementation, their objectives far outweigh the problems. Furthermore, most of the problems can be properly dealt with through other policy initiatives put in place. Works Cited Dudley, W.C. (2013). The Economic Outlook and the Role of Monetary Policy. Retrieved April 21 2014, from http://www.newyorkfed.org/newsevents/speeches/2013/dud130325.html Potter, S. (2013). Recent Developments in Monetary Policy Implementation. Retrieved April 21, 2014 from http://www.newyorkfed.org/newsevents/speeches/2013/pot131202.html
Some economists blame the Federal Reserve’s inaccurate monetary policy. The easy-monetary policy since 2001 was deviating from the Taylor rule. (Alex, 2013)
Mallin, Jay. "Federal Reserve (Fed).” The New York Times, n.d. Web. March 21, 2012. .
The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession.
We feel that the latter is on the radical side of thinking, and that overall the Federal Reserve has the best interest of the nation and international economy in all their decisions regarding the increases in interest rates, etc. Since the onset of the Federal Reserve, we have not gone into a major depression, and over the course of time there will be times when our economy will peak and boom and the Fed will feel that it is time to slow the economy by raising the rates. Bibliography FED 101 Hosted by the Federal Reserve Bank of Kansas City. http://www.kc.frb.org/fed101 Friedman, Milton and Jacobson Schwartz, Anna. A Monetary History of the United States, 1867-1960.
Kroon, George E. Macroeconomics The Easy Way. New York: Barron’s Educational Series, Inc., 2007. Print.
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic growth and stability by creating relatively stable prices and low unemployment. A monetary policy mainly deals with the supply of money, availability of money, cost of money and the rate of interest to attain a set of objectives aiming towards growth and stability of the economy. Here are some of the monetary policy tools:
United States Federal Reserve. (February 11, 2014). Monetary Policy Report. Retrieved June 18, 2014, from http://www.federalreserve.gov/monetarypolicy/mpr_20140211_summary.htm
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
According to federalreserveeducation.org, the term "monetary policy" refers to what the Federal Reserve, the nation 's central bank, does to influence the amount of money and credit in the U.S. economy, (n d). The tools used are diverse but the main ones are:
The Federal Reserve use several tools like discount rate, federal funds rate, required reserve ratio and open market operations to control the money supply. In the simulation, the effect of controlling the money supply on the economy was presented. Typically, releasing money into the system results in higher Real GDP and lower unemployment. On the other hand, it also raises inflation.
Impact of monetary policy on the economy a regional Fed perspective on inflation, unemployment, and QE3 : Hearing before the Subcommittee on Domestic Monetary Policy and Technology of the Committee on Financial Services, U.S. House of Representatives, One. (2011). Washington: U.S. G.P.O.
Smaghi, L. (2009, Aprl 28). Conventional And Unconventional Monetary Policy. Speech at the International Centre for Monetary and Banking Studies (ICMB), Geneva. Retrieved from http://www.bis.org/review/r090429e.pdf
When an economy is in a recession the government has to act differently in order to increase demand and help businesses survive. The money supply method of the monetary policy is a good idea in theory but because of the current economic crisis, banks don’t feel secure enough to lend out there money as the return isn’t guaranteed.
The Social Studies Help Center (n.d.). Monetary and Fiscal Policy. Retrieved November 5, 2011, from http://www.socialstudieshelp.com/eco_mon_and_fiscal.htm