Effects Of Dual Mandate On Economic Growth

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time, including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve, including both the traditional and non-traditional measures to ease credit markets and stimulate the economy.

“1971 would become one of the great ironies of American monetary history.” (Lehman, Lewis E) In the economy the Federal Reserve can control the prices on product and when they do this they can move the price up and down to slow down the buying process or speed it up to help business make more money and help with employment. Furthermore, the Federal Reserve also controls the interest rates for banks because when inflation happens in the economy like when prizes of good and services are in high demand. The worker is going to want more money to compensate for working harder to supply the consumer or the product price goes up because it in high demand so the Fed will try and regulate the market by higher the interest rates to help manage the inflation. Then when work is slowing down the Federal reserve will lower the interest rate to help spark the economy to raise more jobs to lower the unemployment. It can also effect a lot of things in the economy. It like throwing a pebble in the water it then has a ripple effect in the economy it will spread in all around when one thing that is change it will affect many things. When they change the interest rates it like throwing in the pebble in to the economy that ripples through the economy effect the business and consumers. Which this help the Federal Reserve control the economy so they can accomplish

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. (Federal Government, 1977)

It is clear that the economic policy in general and the monetary policy in particular should be concerned with the overall economic well-being. In this paper we propose to discuss this core topic. We will provide an overall picture of the functioning mechanism. In this regard, the discussion will develop around the governmental policies and of FED, and their scope on the free market. The argumentation will refer to the notion of common good and will try to establish if the measures applied by FED have fulfilled their intended purpose given the recent international financial crises of 2007.

In the late 2007, early 2008 the United States and the world was hit with the most serious economic downturn since The Great Depression in 1929. During this time the Federal Reserve played a huge role in assuring that it would not turn into the second Great Depression. In this paper, we will be discussing what the Federal Reserve did during this time including a discussion of our nation’s three main economic goals which are GDP, employment, and inflation. My goal is to describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve including both the traditional and non-traditional measures to ease credit markers and stimulate the economy.

The Federal Reserve exercises its power to stimulate stable employment economies and economic prices. The pursuit of the required employment rate and the creation of price stability, the Federal Reserve can increase or decrease the interest rate.

When the Federal government has to find ways to regain any money lost they lean on the expansionary Fiscal policy and the monetary policy to regain money into the economy. Whether, a change in taxes or even government spending. Even to the three major tools of the expansionary monetary policy to focus on. In the first part of this paper, I will discuss the expansionary fiscal policy and how the Federal government was involved and the changes that needed to be made to taxes, government spending. The second part of this paper, I will discuss the monetary policy and the tools the Federal Reserve used when under this policy. The expansionary fiscal policy was out to kick start the economy, and the expansionary monetary policy was out to change interest rate, and influence money supply. When discussing these two policies you have to think about one aspect when will it ever stop? Will a policy always have to be part of the economy to help the government one way or another?

The federal government reacted to the financial crisis that emerged in 2007 and affected industries in many ways. This crisis caused an economic meltdown that saw a lot of people lose their jobs, homes, and savings. The Federal Reserve implemented several solutions that were designed to improve the liquid assets of the financial institutions and create favorable conditions in financial markets. These solutions resulted in changes to the Federal Reserve's financial records. The solutions were enforced so as to fulfill the Reserve’s objectives on financial policies which involve employment and price inflation.

The primary objective of the Federal Reserve is to stabilize the monetary environment. The Federal Reserve has focused on achieving price stability and maximum employment while avoiding a recession. Within the goals of the dual mandate, the Fed encourages a target inflation rate of 2 percent and the unemployment rate between 4.5 percent and 5.0 percent to maintain a healthy economy. As of today, the inflation rate is 2.3 percent and the unemployment rate is 4.2 percent.

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.

The goals that the Federal Reserve has for its monetary policy is to keep maximum employment along with other reasons. In addition to that another goal the FED has is to stabilize prices and moderate long term interest rates. This is states in the first line of the article. Congress supplied these goals to the Federal Reserve Act.

It widely recognized that the monetary policy within a country should be primarily concerned with the pursuit of price stability. However, it is still not clear how this objective can be achieved most effectively. This debate remains unsettled, but an increasing number of countries have adopted inflation targeting as their monetary policy framework. (Dr E J van der Merwe, 2002) This topic of Inflation targeting is a subject which immediately conjures different perceptions from different people. Many feel that low inflation should be a main aim of monetary policy, while others (such as trade union activists) believe that a higher growth rate to stimulate jobs should be the main concern.

Theories about how the economy works and what will happen in the economy where there is monetary policy or fiscal policy intervention are appropriate in assisting policy-makers understand the possible implications of decisions they make or are under consideration. However, they are rarely complete models and often outcomes cannot be predicted. Reintroduction of a theory suggests that new evidence in support of the theory has been reported.

Therefore, the quantitative easing adopted from 2009 was trying to gradually resume sustainable economic growth. Quantitative easing has helped to avert what could have been a second great depression (Wall Street, 2011). The US economy has been clawing its way out of the recession in 2009 and recovery has been slow compared to previous economic cycles. Regular review of the pace of securities purchase by the Federal reserve and the overall size of asset-purchase program in light of incoming information and adjusting the program as need be will help foster maximum employment and price stability.

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put