Macroeconomic Impact on Business Operations

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Macroeconomic Impact on Business Operations

University of Phoenix�

This paper will address the how the monetary policy has an impact on the factors of macroeconomics, such as gross domestic product (GDP), interest rates, inflation, and unemployment. According to the Federal Reserve, 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.
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The other unpredictability that the Fed works with is the Money-Multiplier; the factor by which the Monetary Base will increase or decrease, for money that the Fed is releasing into or taking out of the system. On the surface it may seem simple, it appears the Fed is trying to use the money supply as a lever to keep the economy on the right track without de-railing it. But on the contrary, it takes complex analyses to find the balance between key macroeconomic variables in light of these ever-changing times. (Online Simulation)

_The Effects of Monetary Policy on the Economy_

Policy is implemented by raising and lowering the interest rate, affecting the demand for goods and services from consumers and businesses alike. There are two types interest rates, real rate of interest and the nominal rate of interest. According to McConnell and Brue, p.146, "The real interest rate is the percentage increase in purchasing power that the borrower pays the lender. The nominal interest rate is the percentage increase in money that the borrower pays the lender, including that resulting from the built-in expectation of inflation, if any." The interest rate affects both consumers and businesses demand for goods and services. The consumers demand is affected by changes in real interest rates. If this rate is increased, it alters the costs of borrowing on credit, banks availability to loan money, household incomes, and foreign exchange rates. If real interest rates are lowered,
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