The Two Types Of Monetary Policies

Monetary Policy is the procedure by which the financial expert of a nation, similar to the national bank or cash board, controls the supply of money. Regularly focusing on a inflation rate or interest rate to guarantee value solidness and general trust in

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.

What is expansionary monetary policy and when is the best time to employ it? What is quantitative easing and who does it benefit? How does this relate to the money supply? Why would a government ever employ contractionary monetary policy?

As the term indicates, monetary policy involves actions to influence financial conditions in order to reach specific economical goals. Short-term interest rate is the variable which is used to indirectly influence demand which consequently impacts the economy. A typical example can be observed where the lowering of interest rates make borrowing less expensive and motivates consumer spending because they can get a better deal on a loan. The extra spending stimulates economic growth. If there exists too much money in the economy demand increases comparatively faster than supply, which serves to create product shortage and eventually inflation. The opposite occurs if there isn’t sufficient money in the economy. People

The term monetary policy refers to what the Federal Reserve, the nation’s central bank, does to influence the amount of money and credit in the U.S economy. The main goals of this policy are to achieve or maintain full employment, as well as, a high rate of economic growth, and to stabilize prices and wages. By enforcing an effective monetary policy, the Federal Reserve System can maintain stable prices, thereby supporting conditions for long-term economic growth and maximum employment. Up until the early 20th century experts felt that monetary policy had little use in influencing the economy. After WWII inflationary trends caused governments to ratify measures that decreased inflation by restricting growth in the money supply.

Thus, critics argue that monetary policy is a more effective tool to fight recessions. Christina and David Romer demonstrated that fiscal policy rarely reacts with the immediacy necessary to enact change during a trough in economic activity. Romer finds that there has been no significance to discretionary fiscal policy during troughs, while monetary policy has a seemingly significant role during historical recessions. John Taylor agrees, stating that even in the face of the lower bound of zero on interest rates, additional measures such as quantitiative easing would prove effective countercyclical policy. Ultimately, both economists reach the conclusion that there is no significance to discretionary fiscal policy during a recession, instead determining that monetary policy is the more effective tool.

Monetary policy focuses on keeping interest rates at a modest level, keeping prices steady, and keeping unemployment low. The Federal Open Market Committee is responsible for making the necessary monetary policy changes. These changes influence both the markets within the United States and the markets internationally. Currently, there is a lot of volatility within the markets, and there is a lot of speculation about if and when the Federal Reserve will raise interest rates. There is also speculation about whether a negative interest rate would work to get the economy back on target. Also, many worry about whether the current government debt level will continue, and with the number of people entering retirement increasing, whether there will be enough money coming in to cover the costs of the social programs, such as Social Security and Medicare.

The Fed is expanding the money supply. The Fed have data that shows a positive increase in the labor market, house hold spending, housing sector. The Fed is trying to increase price stability, strengthen the labor market, and expand economic activity within the nation. Their policy in place is to reduce inflation.

Monetary targeting is between which financial tool to use and which goal is appropriate for that tool. For examples, financial tools such as open market operations (OMO), discount loans, and changing required reserve can monetary target economy to either tighten, to ease, or no further actions in order to reach a country’s goal to low inflation and/or high employment. In essence it goes something like this: TOOLS —> TARGET —> GOAL.

Monetary Policy, in the United States, is the process by which the Federal Reserve controls the money supply to promote economic growth and stability. It is based on the relationship between interest rates of the economy and the total supply of money. The Federal Reserve uses a variety of monetary policy tools to control one or both of these.

The federal reserve should adopt expansionary monetary policy to stimulate the economy to promote growth and development. Currently our nation is in a position where there is no compelling reason to raise interest rates to combat inflation, therefor for the short term I believe we need to push for continuing to decrease unemployment and aim for wage growth. The economic outlook is unclear as foreign economic developments, in particular, pose risks to the United State’s economy. Expansionary monetary policy promotes a positive impact in a few different areas like local investment and global economy.

Monetary policy, ‘The government’s policy relating to the money supply, bank interest rates, and borrowing’ (Collin: 130), is another tool available to the government to control inflation. Figure 4 shows, that by increasing the interest rate (r), from r1 to r2, the supply of money (ms) is reduced from Q1

Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic

| 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

Monetary policy involves manipulating the interest rate charged by the central bank for lending money to the banking system in an economy, which influences greatly a vast number of macroeconomic variables. In the UK, the government set the policy targets, but the Bank of England and the Monetary Policy Committee (MPC) are given authority and freedom to set interest rates, which is formally once every month. Contractionary monetary policy may be used to reduce price inflation by increasing the interest rate. Because banks have to pay more to borrow from the central bank they will increase the interest rates they charge their own customers for loans to recover the increased cost. Banks will also raise interest rates to encourage people to save more in bank deposit accounts so they can reduce their own borrowing from the central bank. As interest rates rise, consumers may save more and borrow less to spend on goods and services. Firms may also reduce the amount of money they borrow to invest in new equipment. A