ECON 350 Review Essay ----Athanasios Orphanides' article " Is Monetary Policy Overburdened ?" Summary Introduction: After the global financial crisis, the economies of many countries were stagnant, some companies closed down, many people lost their jobs, and governments needed to spend much money to help these companies and unemployed people which caused large government debts, the banks also faced to bankrupt. All of these problems caused the governments wish the monetary policy can provide the solutions to recover the economy. The primary goal of monetary policy is to keep price stability which is very important for central banks, it could help central banks make the monetary policy process is apolitical and get the credibility and independence. But, the government's intervention of central banks to achieve the three public policy goals about full employment, fiscal sustainability and financial stability would politicized the monetary policy, increase the responsibilities of central banks which overburden the monetary policy, reduce the attention of keeping price stability and effect the credibility, independence and contribution of crisis management of central banks. Full employment: The full employment is a mean public policy goal of monetary policy. After the global financial crisis, the unemployment rate had large increase in many developed countries such as the United State, the United Kingdom, Japan and the euro area. In the United State, the unemployment rate increased largely until 2010 there is decreased trend, but it was still much higher than before. In the United Kingdom and Japan, the unemployment rate declined after 2009. The employment growth in the euro area was very unsatisfactory, t... ... middle of paper ... ...overnments forcibly use the monetary policy and let readers easy to find the key points. In the last public policy "financial stability", the author divides the influences of monetary policy into two phases, preventive phase and clean up phase which clearly shows the main topic that the author will analyse. In the first phase, the tighter monetary policy and the promise of macro-prudential measures and micro-prudential measures directly let readers know monetary policy's additional goal to remove the imbalance and help the banks. In general terms, this article clearly express the monetary policy is overburdening through the analysis of these three public policy goals, and the clear structure and the real examples and the data graphs not only left a deep impression in reader's minds, but also help readers easily and clearly understand the ideas of the author.
-1. How could the Federal Reserve prevent and solve financial crisis? – The function of Federal Reserve.
Monetary Policy is another policy used in Keynesianism which is a list of protocols designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system, also known as the central banking system in the U.S., which holds control of this policy. Monetary policy has three tools used by the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rate a bank will charge.
In conclusion, the current macroeconomic situation in the United States is characterized by moderate growth because of better economic conditions that were brought by the events of 2013. The country has experienced moderate economic growth since the 2008 global recession but has shown real signs of momentum. While the country is not concerned about recession or inflation, the rate of unemployment is still a major challenge despite improved consumer and business confidence. As a result, the Federal Open Market Committee or Federal Reserve System needs to adopt fiscal and monetary policy initiatives that help address the unemployment issue and promote high economic growth.
In this paper, I will explore the definition of monetary policy, the objectives of the monetary and the monetary policy bases.
Kroon, George E. Macroeconomics The Easy Way. New York: Barron’s Educational Series, Inc., 2007. Print.
Before we begin our investigation, it is imperative that we understand the historical role of the central bank in the United States. Examining the traditional motives of this institution over time will help the reader observe a direct correlation between it and its ability to manipulate an economy. To start, I will examine one of its central policies...
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:
As different issues relating to global financial crisis and its effect on employment in European Union were brought up in the article, this report aims to analyze the unemployment situation and inflation in Europe with the aid of economic theories. In the report, the following aspects have been considered: consumer prices and how they affect inflation, unemployment and how it is related to inflation and finally,...
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
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:
Monetary Policy involves using interest rates or changes to money supply to influence the levels of consumer spending and Aggregate Demand.
Inflation and unemployment are two key elements when evaluating a whole economy and it is also easy to get those figures from National Bureau of Statistics when you want to evaluate it. However, the relationship between them is a controversial topic, which has been debated by economists for decades. From some famous economists such as Paul Samuelson, Milton Freidman etc to some infamous economists, this topic received a lot of attention. However, it is this debate that makes the thinking about it evolve. In this essay, the controversial topic will be discussed by viewing different economists’ opinions on that according to time sequencing. But before started, it is worthy getting a better understanding of the terms, inflation and unemployment.
Mouhammed, A. H. (2011). Important theories of unemployment and public policies. Journal of Applied Business and Economics, 12(5), 100-110.
It is difficult for government to achieve all the macroeconomics objectives at the same time. Conflicts between macroeconomics objectives means a policy irritating aggregate demand may reduce unemployment in the short term but launch a period of higher inflation and exacerbate the current account of the balance of payments which can also dividend into main objectives and additional objectives (N. T. Macdonald,