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about federal reserve
effects of inflation throughout the world and the conclusion
about federal reserve
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Define the role of the Central Bank and its influence on the market in the national economy.
“Monetary policy is the process of supplying nominal money, look after the availability of money and cost of interest rate, which is controlled by the government or central bank, can be rather an expansionary policy, or a contractionary policy.” The expansionary policy is adopted to increase the whole amount of supply of money in the economy, and a contractionary policy is used to decrease the whole amount of nominal money supply. The central bank or government usually use the expansionary policy to fight against unemployment in a recession, where they lower the interest rate, so investment can grow. On the other hand the contractionary policy is the process of raising interest rate the aim is to fight inflation.
The IS/LM model stands for Investment Saving / Liquidity preference. In case where the nominal money supply is increased by the Central bank for any uses that will shift the LM curve to the right, this will cause a lowering of interest rate and a rising of Gross Domestic Product. In case where the Central bank wants to raise interest rate, than it has of course to decrease the money supply and shift the LM curve to the left and this will cause a fall of national income. In other words if the Central banks decides to raise the interest rate, consumers aren’t willing to take any credits that’s why the GDP, in which contains disposable income plus Investment plus government spending, will go down and the whole economy will be effected. To explain the IS curve in a better way, we take the example of the government, if the government decides to spend more on government spending and cut taxes for lower salary earners, than consumers ...
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...not in the short-run, that why FED lets the economy to boost when there is inflation in the short term. The problem economists are afraid is that in the long-run inflation will go out of control, so no Central banks or even not the government can do a thing against it. During inflation it’s hard for Central banks and politicians to estimate when they should react. Since in the United States the government is looking for more and more economy, the Federal Reserve Bank has in somehow a double task to do, in one hand the inflation shouldn’t that big that people aren’t able to consume anymore and on the other hand the economy should be stopped by reducing the inflation.
Reference:
http://www.ecb.int/mopo/html/index.en.html
http://www.house.gov/jec/fed/fed/fed-impt.htm
http://en.wikipedia.org/wiki/Money_creation
http://en.wikipedia.org/wiki/Interest_rate
Monetary Policy refers to what the government does to influence the amount of money and credit in the economy, what will happen if money and credit affects interest rates and the performance of the economy. This policy ensures the price stability and general trust in the currency.
In this paper, I will explore the definition of monetary policy, the objectives of the monetary and the monetary policy bases.
Monetary policy is the control of monetary variables such as, interest rates and money supply, by governments in order to stimulate the economy. Monetary policy can also be utilised in order to control the length and severity of recessions.
Monetary policy is an extremely valuable guideline for our economy. Small changes in the money supply can affect the price level, interest rates and almost all aspects of the macroeconomic world. When looking at monetary policy, understanding the variables of each argument can help us determine a more extensive view of each policy.
...gional Federal Reserve Bank. Monetary policy regarding open market operations is established by the FOMC. Policy regarding reserve requirements and the discount rate is determined by the Federal Reserve Bank. Another role in which the Federal Reserve plays a major part is in the supervision and regulation of the U.S. banking system. The examination of institutions for safety and solidity - banking supervision - is shared with the Office of the Comptroller of the Currency, which supervises national banks, and the Federal Deposit Insurance Corporation, which supervises state banks that are not members of the Federal Reserve System. The implementation of the Federal Reserve in 1913 was truly a great assett to financial and American well being. Without the Federal Reserve, we would have no agency to control monetary policy and push the economy towards full employement.
Monetary policy uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending . “The object of monetary policy is to influence the nation’s economic performance, as measured by inflation”, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by the Central Bank and influences money supply .
Monetary Policy involves using interest rates or changes to money supply to influence the levels of consumer spending and Aggregate Demand.
“The goal is an equilibrium level of national income that generates full employment with price stability”. (Amacher & Rate, 2012 pg. 9.2) During a recession, the government can use an expansionary fiscal policy to fill the recessionary gap, influencing the aggregate curve to the right. A recessionary gap happens when the economy is operating under full unemployment. When the economy is going through a recession; net exports, individual incomes, and investments will decrease affecting our GDP. President Barack Obama used an expansionary fiscal policy by enacting the Economics Stimulus Act during the Great Recession. If the government wants the opposite effect, it would implement a contractionary monetary policy, which slows down the economy. An economy is slowed down by reducing the money supply. The Federal Reserve contracts the money supply by selling bonds through market operations, meaning the public market. When bonds are sold, interest is collected by the central bank which has an effect on the price of goods and services (Inflation). The Federal Reserve can also affect the money supply by adjusting interest rates which will affect borrowing, consumption, and investments. If the Federal Reserve wants to expand the money supply it will purchase government bonds. This will cause interest rates to fall resulting in an increase in investments and borrowing
Monetary Policy is the changes in the quantity of money in circulation designed to alter interest rates and affect the level of overall spending. Fiscal policy is t...
Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) controlling money in the economy so as 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 so as to attain a set of objectives aiming towards growth and stability of the economy.
Its main focus is on monetary and other financial markets, determination of interest rates, extent to which monetary policy influences the behavior of the economic units and the implication such influence have in the context of macroeconomics. Hence, monetary policy could be defined as an economics of money supply, prices and interest rate, and their consequences in the economy. It therefore focuses on monetary and other financial markets, determination of interest rate, extent to which these policies, influences the behavior of economic units and the implications the influence has in the macroeconomic context. (Jagdish,
“The Federal Reserve System, or Fed, is the most important regulatory agency in the U.S. monetary system” (333). The monetary policies used by the Federal Reserve are designed to control the rate of growth and size of the money supply, which affects interest rates. “When the Fed takes actions, it is trying to influence investment, consumption and total aggregate expenditures” (352).
The first major aspect of the monetary policy by the Federal Reserve is its interest rate policy. This interest rate policy is mainly determined by the figure for the federal funds rate, which is the rate at which commercial banks with balances held within the Federal Reserve can borrow from each other overnight in ord...
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).
As we are moving to the end of the course, we want to present you with the Federal Reserve System (Fed), which is the central bank of the USA. We are going to explore the roles of Fed in regularizing the economy, its function, and also the tools used in doing that. We will learn how central banks regulate the banking system and how they manage money supply in economies. We will also be presented to the financial crises lessons we can be able to understand the importance of the regulatory system; and then, we answering questions such as: