Macroeconic Impact On Business Operations

Macroeconomic Impact on Business Operations

The following analysis will be conducted on the Macroeconomic Impact on Business Operations. This analysis was conducted to observe the affects of monetary policy on macroeconomic factors that influence GDP, unemployment, inflation, and interest rates. It will also identify tools used by the Federal Reserves to control money supply, explain how these tools influence the money supply and macroeconomic factors, elucidate how money is created, and give a recommendation on monetary policy.

Tools used by the Federal Reserves to Control Money Supply

The Federal Reserves has an immense impact on the macroeconomic business operations of the government. The three sets of tools that allow the Chairman of the Federal Reserves to steer, influence, and control money supply are going to be identified in detail in this analysis.

Banks borrow money in order to lend money, and money stimulates the economy, and the Spread between the Discount Rate (DR) and the Federal Funds Rate (FFR) is one of such tools that provide this type of control. The two main sources to borrow money from are the Federal Reserves and other banks. If the Federal Reserves charges a DR lower than the FFR (which is offered by banks), then the bank would be inclined to take advantage of this discount. So, if the DR decreases the spread between DR and FFR increases, this simply has the affect that banks will likely borrow more money from the Federal Reserves instead of other banks. At the same time, this influences the macroeconomic business operations of the government, since the total amount of money in the system is increased, and this allows more consumers to borrow money to spend more money. This is a typical multiplier effect scenario. However, if the DR increases, the spread will end up positive, and banks will borrow from other banks.