¶ … tactics that the Federal Reserve uses to manage the economy. The Federal Reserve has a mandate to manage the overall health of the economy (usually GDP), the inflation rate and the unemployment rate. To strike the right balance, it utilizes a number of different techniques. The three main ones are open market transactions, the discount rate, and reserve requirements. All three of these can be used as part of either an expansionary or contractionary strategy.
An expansionary strategy is one that seeks to stimulate economic growth. In general, some degree of economic growth is always desirable. Expansionary policy encourages business investment or it pumps money into the economy. By altering the supply and cost of money, the Federal Reserve can encourage business investment, but also to a lesser degree consumer spending. Expansionary strategy should increase the GDP, increase inflation and lower the unemployment rate.
At times, however, the economy could grow too rapidly. When that occurs, inflation rate could be too high, eroding savings and thereby providing a disincentive to invest. Normally, GDP growth cannot be too high and unemployment too low, so the inflation rate being too high is almost always the key motivator for contractionary monetary policy. Contractionary policy is that which seeks to slow the rate of economic growth -- it is never to actually contract the size of the economy (i.e. bring about a recession). By increasing the cost of money or by reducing its supply in the market, the Federal Reserve can slow growth in the economy.
The first tool that the Fed uses is open market transactions. This typically involves the buying or selling of short-term Treasury securities. When the Fed buys Treasuries, this is an expansionary policy because the Fed is pumping money into the banking system, which sells the Treasuries to the Fed. When...
Federal Reserve The key information in the January 14, 2004 Federal Reserve summary ranged from mildly encouraging to 'no change' as far as the economy was concerned. Virtually all areas were experiencing small amounts of employment growth, although there were pockets of decline as well. ("Beige Book," January 14, 2004) In fact, retail sales were up a small amount, mainly because upscale retail stores were having a good season, although the lower
derivatives in general and discusses their use by Rolls-Royce plc in its risk management programme. Derivatives derive their value from an underlying financial instrument and as such, they allow a way of accessing and trading in the value of the underlying instrument without needing to put up the full value of that underlying instrument. Derivatives can be used for a number of purposes, including leverage, hedging, income generation and profiting
S.A., there is bound to be more problems relating to criminality as well as social problems. For instance legalization of drugs will lead to even more violence across the U.S. Mexico border with each cartel trying to control as much of the market as possible. It will be a magnification of what is currently experienced in the drug deals. Factually, criminals will not stop being criminals because a drug has been
As a result, financial planners need to advise clients who receive these payments and make large cash investments to do so as soon as possible. The study concluded that dollar-cost averaging would be unlikely to topple the superior results of lump-sum investing at this time (Williams and Bacon). Profit-sharing allows employees to earn bonuses according to company performance (GoSmallBiz 2008). A certain percentage is set aside by the firm and
3. The country that I have chosen is South Africa. Absolute advantage is a situation when a country has an advantage in producing an item; comparative advantage reflects a situation when a country does not have absolute advantage but on the balance of trade should produce that good anyway. Compared with the United States, South Africa has absolute advantages in some mineral production, but mainly in the cost of labor.
Ben S. Bernanke is a noted American Economist with degrees in Economics from Harvard and MIT, past professorships at Stanford, NYU, MIT and Princeton, experience as a member of the Federal Reserve System's Board of Governors, and experience as past Chairman of the Presidential Council of Economic Advisors; furthermore, Bernanke is a "Depression Scholar" (Grunwald, 2009) whose "main academic focus was the central role of monetary policy and the Fed
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