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Monetary Policy

Powerful Essays
Monetary Policy in the United States

Abstract

The role of government in the American economy goes past just being a regulator for specific industries. There are two main tools for achieving these objectives: fiscal policy and monetary policy. The Federal Reserve sets the nation's monetary policy to promote the objectives of maximum employment, stable prices, and moderate long-term interest rates.

Monetary Policy in the United States

Monetary policy is the government or central bank process of managing money supply to achieve specific goals (wikipedia.org). The United States monetary policy affects all kinds of economic and financial decisions people make in this country. Whether to buy a car, or build a house, start a new company, or invest. The United States is the largest economy in the world, significantly affecting the economic and financial effects on other countries.

In 1694, the Bank of England was created requiring the ability to print paper money or notes and back them with gold (federalreserve.gov). The goal of the monetary policy was to maintain the value of the print notes. The industrialize nations set up central banking systems between 1870 and 1920. The Congress established the Federal Reserve System in 1913 to strengthen the supervision of the banking system and stop bank panics that had erupted periodically in the previous century. They were one of the last systems set up. At this time, it was clear that there was a business cycle, and economic theory began to understand the relationship of the interest rate to that cycle. Because of the Great Depression in the 1930s, Congress gave the Federal Reserve authority to vary reserve requirements and to regulate stock market margins...

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...ereby cutting interest rates. Nevertheless, once interest rates reach zero, the Federal Reserve cannot help anymore. The objected here is to make the economy a better place for all. This is achievable if all the facts are true. This will lead to the population's willingness to spend money on durable goods.

References

The Federal Reserve System: Purposes and Functions, Chapter 2: Monetary Policy and the Economy. (2005, July 5). http://federalreserve.gov/pf/pdf/pf_2.pdf

Monetary Policy. (2006, September 29). Retrieved September 30, 2006. http://www.frbsf.org/

Monetary Policy. (2006, January 3) Retrieved October 4, 2006.

http://federalreserve.gov/policy.htm

Monetary policy. (2006, October 4). In Wikipedia, The Free Encyclopedia. Retrieved 17:55, October 4, 2006, from http://en.wikipedia.org/w/index.php?title=Monetary_policy&oldid=79488401
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