Monetary Policy
In the United States, the Federal Reserve system is charged with implementing monetary policy (Investopedia, 2013). Monetary policy is essentially any the output of any central bank that seeks to manage an economy by means of manipulating the supply of money in the economy (Investopedia, 2013). The Federal Reserve (2013) defines monetary policy as what it does to "influence the amount of money and credit in the U.S. economy." Thus, monetary policy affects not only the quantity of money but the cost of money and these factors directly affect the broader market with respect to investment, manufacturing output and overall economic activity.
The Federal Reserve uses monetary policy for three main purposes. The first is to management the GDP, the second is to manage inflation and the third is to manage unemployment. The Fed seeks to strike a balance between these three objectives with its policy, and the result of this approach is that it will use the different monetary policy levers to stimulate growth, or in other cases to slow growth if the inflation rate is getting too high. The two approaches are known as expansionary and contractionary, for their effects. The current monetary policy is expansionary in nature. This is because GDP growth is slower than where it should -- there is a gap between the actual GDP level and the potential GDP level (Gavin, 2012). In addition, the unemployment rate is higher than it should be, and inflation rates are still low. Thus, expansionary monetary policy is necessary to stimulate economic growth, by adding...
Monetary Policy Any change in the central back policy or the bank reserves, which is made to influence the interest rates and thus the investment, employment or production, is called the monetary policy. If the monetary authority wants to increase production, they need to increase the bank reserves. The bank then expands the money supply, which in turn reduces the interest rates. Monetary policy is one of the tools that a
Monetary Policy In the attached resource files, there is a chart that outlines three perspectives on how the economy should be run: the mainstream macroeconomics perspective, the monetarism perspective and the rational expectation perspective. Which one of these approaches do you most agree with? What in Macroeconomics supports your point-of-view? The view that makes the most sense is the rational expectation perspective. The reason why, is because this will take into account
Macroeconomics The two-year time period that will be covered in from the middle of 2002 to the middle of 2004. Starting with Q3 in 2002, the GDP figures during this time period were as follows: Nominal Real GDP Trailing GDP (2009 chained) change This data shows that the economy was facing conditions of accelerating growth during this time period. The economy was improving relatively slowly during the latter stages of 2002 and into Q1 2003, but after that
Future Ahead In the face of global credit crisis, it is expected that Fed has to make further changes such as cut in the more important federal funds rate to maintain stability. The pattern of growth is likely to change showing a slow down. "Mark Zandi, chief economist at Moody's Economy.com, has trimmed his forecast to show economic growth of about 2.5% in the current quarter, down sharply from 4% in
U.S. Economic Assessment economy has been relatively stable for the past few years, with unemployment being slowly reduced, GDP growth slow but stable, low interest rates for many years and inflation being largely held in check. Short run fluctuations have been just that -- short run events that do not seem to have impacted long-run economic policy nor the long-run direction of the U.S. economy. In basic macroeconomic theory, short run events
Demand-Side Policies and the Great Recession of 2008 A recession can be defined as an overall downward spiral in a nation's economy. In particular, the outcome of recession is high inflation, high level of unemployment slowing down its gross domestic product (GDP) (Study, 2016). In this period there is an economic weakening and is usually accompanied and further complicated by decrease in the stock market, an upturn in unemployment and also
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