Eco 561 Week 3 Case Study Of Microeconomics

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The Federal Reserve increases its reserves by issuing loans to a commercial banking system. This allows the bank that is borrowing reserves to disburse credits to the public. The Federal Reserve Banks offer primary credit, secondary credit, and seasonal credit, to bank organizations each with its own interest rate. Depending on if the Fed wants to decrease or increase the interest rate can be a positive or negative effect to the public. If the rate is decreases it encourages banking organizations to get more loans. When this is done the banks acquire more funds and are able to disburse more loans the people.

An ethical issue that individuals face today involves the price war or price discrimination involving the airline industry. According to the legal definition of price discrimination: Price discrimination is the practice of charging different persons different prices for the same goods or services. Price discrimination is made illegal under the Sherman Antitrust Act. 15 U.S.C. §2, the Clayton Act, 15 U.S.C. §13, and by the Robinson-Patman Act, 15 U.S.C. §§13-13b, 21a, when engaged in for the purpose of lessening competition, such as tying the lower prices to the purchase of other goods or services.

To be more precise in the way the monetary policy works, it is under three implements that define its functions: open market operations, changes in the discount rate, and changes in the required reserve ratio. These are the functions that provide the Federal Reserves (the Fed) the ability to change the money supply in our economy. It is a matter of actions taken to maintain our country in the best way possible and, of course, stability comes with a price. With things like supporting our troops in other countries, like Iraq and Afghanistan, a cut in tax rates, and increases in overall spending, it adds up to where we have spent more than we have collected in revenue (Fix the

Demand is simply defined as goods and services that people are willing and have the ability to buy during a certain time at various prices. Demand in this study will be the request of the patient for medical services. The physicians demand estimates are focused on the recent utilization of healthcare and the delivery patterns. A current pattern of the utilization of physician services is observed as the level of services for what the U.S is willing and able to pay. The demand determinants are based on future demand trends in one of the

The Federal Reserve has three tools to help maintain and make changes within money supply and policies. The first tool and most popular tool is open market operations. The Reserve uses this instrument to regulate the rate of federal funds within the system, which is merely the rate in which banks borrow reserves from other banks. With this tool, they can alter the interest rates and amount of money on the open market. Therefore, the Reserve can essentially control the total money stream, whether that is expanding and contracting it.

The first to be discussed is the discount rate is the interest rate charged by the Federal Reserve to banks for short term loan basis. The increase and decrease of the money supply is determined by the discount rate. Discount rate would be used is a bank needed twenty million dollars, the money would be borrowed from the United States treasury but has to be paid back at a interest rate of three percent. This monetary tool would be used with inflation if the expected inflation increases so will the discount rate and vice versus at the same rate remaining equivalent. During periods of time with high unemployment rate the discount rate is lowered in order to counteract high unemployment and to prevent the possibility of a recession. Secondly, there is the ratio reserve. Ratio reserve is the amount of money that has to be kept at a bank on reserve; this amount can be adjusted to back outstanding deposits. Ration reserve creates the marginal money supply at any given moment due to the Fed raising or lowering the reserve requirements. Although it is rarely used to control the money supply it is a tool that can be used. An example of how it would be used would be if Will comes in and deposit one thousand dollars and the reserve amount is ten percent, of that one thousand dollars one hundred will go to the reserve ratio. Allowing the other ninety percent to be used as a money supply for loans and etc. In the case of unemployment and high inflation the Fed has to lower the reserve ratio in order to decrease the unemployment rate and inflation because if the reserve ratio is lower then the economy and the money supply is moving more vividly. Lastly is the open market operations. Open market operations is the act of buying and selling Treasury securities’ between the Fed and certain selected banks in the open market, it is directed by the FOMC. Open market operations would be considered

To begin, the article explains the Federal Reserve’s plan to take a careful approach to enacting contractionary monetary policies, policies used to decrease money supply, in the future. Last December the Federal Reserve raised the interest rates after they had been near zero for years to ensure inflation was kept in check and to promote economic growth. It appeared the economy would be in for another increase in the interest rates sometime this year, but the Feds have rethought that strategy. If the Federal Reserve were to continue to raise interest rates it would have short-run and long-run effects on the Money Market, Goods and Services Market, Planned Investment, Phillip Curve, and Aggregated Supply and Demand. These effects are aspects that have to be considered because they express and explain the effects the increase in interest rates has on the economy and explain if the Federal Reserve is enacting the correct policy to achieve their goal.

One form of direct control can be exercised by adjusting the legal reserve ratio (the proportion of its deposits that a member bank must hold in its reserve account), and as a result, increasing or decreasing the amount of new loans that the commercial banks can make. Because loans give rise to new deposits, the possible money supply is, in this way, expanded or reduced. This policy tool has not been used too much in recent years. The money supply may also be influenced through manipulation of the discount rate, which is the rate if interest charged by the Federal Reserve banks on short-term secured loans to member banks. Since these loans are typically sought to maintain reserves at their required level, an increase in the cost of such loans has an effect similar to that of increasing the reserve requirement. The classic method of indirect control is through open-market operations, first widely used in the 1920s and now used daily to make some adjustment to the market. Federal Reserve bank sales or purchases of securities on the open market tend to reduce or increase the size of commercial bank reserves. When the Federal Reserve sells securities, the purchasers pay for them with checks drawn on their deposits, thereby reducing the reserves of the banks on which the checks are drawn. The three instruments of control explained above have been conceded to be more effective in preventing inflation in times of high economic activity than in bringing about revival from a

Likewise, the Federal Reserve System performs many responsibilities, including executing the Monetary Policy. The Federal Reserve manages inflation through controlling credit, which is a significant factor affecting money supply. Contractionary monetary policy is utilized when interest rate rises, which causes credit to become more expensive and lessens the money supply. However, when there is not a possibility of an inflation, the Federal Reserve utilizes expansionary monetary policy. This makes credit accessible by lowering interests rate, leading to employment and business

When the Federal Open Market Committee (FOMC) wants to increase the money supply, they buy up government bonds from the public on the bonds markets (Mankiw, 2009). The result of buying bonds puts money in the pockets of the public, if the Fed wants to decrease the money supply, they sell off bonds. It is generally thought that when the public has more money available to them, they will consume more. This increased consumption should lead to an overall increase in Gross Domestic Product (GDP) and expansion of the economy.

      Monetary policy is under the control of the Federal Reserve System and is completely discretionary. It is the changes in interest rates and money supply to expand or contract aggregate demand. In a recession, the Fed will lower interest rates and increase the money supply. The Federal Reserve System’s control over the money supply is the key Mechanism of monetary policy. They use 3 monetary policy tools- Reserve Requirements, Discount Rates/Interest Rates, and Open Market Operations. The reserve requirement is the percentage of bank deposits a bank must hold in reserves and cannot loan out. By raising or lowering the reserve requirements, the Fed controls the amount of loanable funds. The interest rate is the amount the FED charges private banks, so they can meet the reserve requirements. The prime rate is currently set at 5%. If the Interest rate is low, the banks will borrow more money from the FED and the money supply will increase. Interest rates have been above average for the past 20 years, but are currently considered low. Open Market Operations is the most effective and most used

Monetary policy affects the aggregate demand by altering the supply or cost of money. One of which is the alteration of the rate of interest. By reducing the interest rate, it encourages consumers and businesses to borrow and spend or invest instead of saving their money. As a result, the supply of money increases. When there is more money, it

In the United States, minimum wage has remained at a low number for several years. Minimum wage is defined as the lowest possible income that an employer can legally pay an employee. This ensures that all people are fairly paid and not defrauded by companies or businesses. Minimum wage is considered a price floor and the minimum wage laws determine the lowest price possible that any employer must pay for labor. In an economic model, the quantity of supplied is greater than the quantity demanded and the minimum wage is above equilibrium price and quantity. Minimum wage prevents labor supplied and labor demanded from moving

Microeconomics is the economic influences that impact at the micro, or firm, rather than macro level. The study of this subject is one that is highly valuable for any studying business with the provision of knowledge that will increase understanding of different influences and support the decision making processes. With the knowledge gained, along with the skills in applying that knowledge developed through class work and exercises for the different modules, there has also been the development of increased confidence, both personal and in the theories, in using the relevant concepts and tools in a practical setting.