Monetary policy is extremely prominent in affecting the performance of the economy. The Federal Reserve System, the central bank of the U.S., is responsible for carrying it out. While it is of huge importance in today's economy, it is not alone when it comes to "money controlling tools." Fiscal Policy, which is controlled by the U.S. Government, is the other way in which to control the economy. Most people are more familiar with fiscal policy while many less are familiar with monetary policy and its tools, which are interest rates, reserves, and open market operations. Monetary policy affects all kinds of economic and financial decisions people make in this country. Whether to get a loan to buy a house, a car, or to start up a company, monetary policy will have its say. Whether to expand a business by investing in a new plant or equipment, whether to put savings in a bank, in bonds, or in the stock market, monetary policy will be there influencing every step of the process. Furthermore, because the U.S. is the largest economy in the world, its monetary policy also has significant economic and financial effects on other countries. The object of monetary policy is to influence the performance of the economy as reflected in such factors as inflation, economic output, and employment (Melton 6). It works by affecting demand across the economy. That is, people's and firms' willingness to spend on goods and services. .
Although this paper focuses on US monetary policy, some further discussion of fiscal policy is appropriate because it is the other way that the economy can be controlled. The fiscal policy consists of two main tools: the changing of tax rates, and the changing government spending. The main point of fiscal policy is to keep the surplus/deficit swings in the economy to a minimum by reducing inflation and recession. A change in tax rates is usually implemented when inflation is unusually high, and there is a recession with high unemployment.
Through the use of reserve requirement, discount rate, and open market operations, the Fed have the opportunity to dictate the monetary policy. ... During the four business cycles, the Fed dictates the levels of each in order to pull out of a depression or balance a peak. ... Along with the FDIC, the FED make sure banks can not go under during a depression or loose too much in a peak through its policies....
The Fed is keeping the short-term interest Rate at 1%. ... Some economist warned that the Fed is waiting too long. ... The main question that economists have is how the Fed will signal a shift in policy. ... The Fed was hopeful for the first time this year and said that "the labor market appears to be stabilizing." The growing difference between low short-term rates and higher long-term rates reflects a growing apprehension between what the Fed is doing and what investors think the Fed will do. ...
This basic mission has not changed for the more than 80 years that the Fed has been in existence. Although the purposes and functions of the Fed have not changed over its history, the economic, financial and social environment in which the Fed operates has changed. ... Today, the Fed is a market-driven and customer-driven entity. ... This is one of the effects that the Fed hopes to achieve when it raises interest rates. ... Because of this, the Fed considers many factors before it decides to move interest rates. ...
The Federal Reserve Bank The Federal Reserve Bank (FED) is a system of 12 regional Reserve Banks along with a Board of Governors, in Washington D.C. ... The FED is the bank for our Government and all US banks. ... To combat this the FED has used another one of its tools to control the economy. ... The FED has dropped their reserve rate to an unimaginable level. ... The FED would rather have the economy have a steady, slow growth. ...
Type of expenditure @ Fed. ... =pension & income security(39%)-State-sales & excise tax (48%),education(36%),Local-education(43%),property tax(74%)-National income statistics useful-contribution of land,labor,capital,entrepreneurial talent-Economy output also income-what we spend in our economy goes towards stimulating it to be stronger & provide for us-circulate $-The $ Supply in the US-backed by the gov'ts ability to maintain a stable value-b.value of $ is determined by supply & demand-demand rises, value rises-c.value of $ related to price level-price of goods rises, money is worth les...
With tame inflation, the Fed is free to cut interest rates in an effort to stimulate the economy. ... This scenario appears unlikely, as the Fed has only created stimulus when they deemed absolutely necessary. With the Fed making the "soft landing" they have wanted, it does not seem practical that they would blow it with a "bumpy takeoff." ... Likewise, the Fed's stimulus is going to have to work the same way to recover profit margins. ... It is highly unlikely they will allow the Fed Fund Rate to drop below 3.0%. ...
When the Fed increases the money supply, the policy is called expansionary. When the Fed decreases the money supply, the policy is called contractionary. ... Let's investigate how the Fed affects the money supply. There are three basic ways that the Fed can affect the money supply. ... When the Fed purchases government bonds, the Fed exchanges ...
A. Regulation T sets the minimum percentage of the payment you must make when you buy stock on margin. The FED has a higher margin rate through Regulation T which means that it can control over speculation in stocks and stock market credit. It prevents another stock market crash. It will rise if ...
