Macroeconomics - Monetary Policy
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Francis E. Crespo-Gonzalez
ECON*5F70*010 April 6, 2011
Macro Economics
Part I Monetary Policy: Monetary policy in the United States is the responsibility of the Federal Reserve ("The Fed"), the nation's central banking authority. Federal Serve policymakers encounter about eight times a year to set monetary policy. They examine data on the state of the economy at the time and review forecasts of future economic circumstances. The monetary policy, the Federal Reserve affects the nation's money supply and helps outline the direction of the economy. The Monetary policy has two basic goals: to promote "maximum" sustainable output and employment and to promote “stable" prices. In the long run, the amount of gods and services the economy produces (output) and the number of jobs it generates (employment) both depend on factors other than monetary policy. The Quantitative easing is an unusual monetary policy used by some central banks to stimulate their economy. They use this conventional monetary policy when the policy has not been effective. The central bank makes money to buy government bonds and other financial assets in order to rise money supply and the excess reserves of the banking system. Expansionary monetary policy involves a lowering of short-term interest by the central bank through the buying of short-term government bonds. When short-term interest rates are at or close to zero, normal monetary policy does not longer function as a purchase of short-term government bonds. This turn will motivate the economy as it inspires consumer and business spending and promote job growth. Quantitative easing may cause higher inflation and excessive money is created. An increase in money supply in excess has an inflationary effect. If production in an economy increases, the value of a unit of currency will increase more. The new money could be used by the banks to invest in new markets rather than to to lend to local business that are having trouble getting loans....
ECON*5F70*010 April 6, 2011
Macro Economics
Part I Monetary Policy: Monetary policy in the United States is the responsibility of the Federal Reserve ("The Fed"), the nation's central banking authority. Federal Serve policymakers encounter about eight times a year to set monetary policy. They examine data on the state of the economy at the time and review forecasts of future economic circumstances. The monetary policy, the Federal Reserve affects the nation's money supply and helps outline the direction of the economy. The Monetary policy has two basic goals: to promote "maximum" sustainable output and employment and to promote “stable" prices. In the long run, the amount of gods and services the economy produces (output) and the number of jobs it generates (employment) both depend on factors other than monetary policy. The Quantitative easing is an unusual monetary policy used by some central banks to stimulate their economy. They use this conventional monetary policy when the policy has not been effective. The central bank makes money to buy government bonds and other financial assets in order to rise money supply and the excess reserves of the banking system. Expansionary monetary policy involves a lowering of short-term interest by the central bank through the buying of short-term government bonds. When short-term interest rates are at or close to zero, normal monetary policy does not longer function as a purchase of short-term government bonds. This turn will motivate the economy as it inspires consumer and business spending and promote job growth. Quantitative easing may cause higher inflation and excessive money is created. An increase in money supply in excess has an inflationary effect. If production in an economy increases, the value of a unit of currency will increase more. The new money could be used by the banks to invest in new markets rather than to to lend to local business that are having trouble getting loans....