Monetary Policy And Its Effects On The Economy

The Federal Reserve is the single entity in control of the monetary policy of the United State of America. Monetary policy is the process that the Federal Reserve takes in order to control the supply of money and to attempt the control the direction of interest rates. The reason for doing these actions is in attempt to control the country’s inflation and employment rates, which are the biggest indicators and factors of a healthy economy.

Federal Reserve can be very confusing to understand and know what is their purpose and how they help the economy. The Federal Reserve was started in December 23,1913 by President Woodrow Wilson who sign the Federal Reserve Act. The Fed has many things that it controls in are economy. One of the Reason that President Woodrow Wilson put the Federal Reserve Act in to place because in 1913 there were a feel that banks were instable so many investors did not feel confident in the banks and felt that it was unsafe. One thing that made Woodrow Wilson make the Federal reserve is the people making a run on the banks frequently, which many bank at this time did not keep enough money in the bank and people panic heard about other banks falling so they would try and get all their money out of the banks as fast as possible. With so many people running on the bank would cause the bank to fell which became a big problem following the Great Depression. Then Woodrow Wilson need to find a way to make the bank safer and build a more secure financial system. One thing to understand is also the monetary policy which refers to Fed nation central bank, which influence the amount of money and credit in the U.S. economy and how we spend money and credit affects interest rates which help the U.S economy perform. However, the monetary policy main reason it to promote maximum employment, stable prices, and long term interest rates which help the feds control the economic growth.

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.

Federal Reserve Chairman Ben Bernanke 's meeting dealt mainly with the issues that could stabilize the economy after the great recession. After creating a number of policies to fight the 2008 crisis, Chairman 's move to further reduce Quantitative Easing was a bit of a disappointment. The Fed will reduce its purchases of long-term Treasuries and mortgage-backed securities by another $10 billion a month. Apart from this, Fed is going to concentrate on maximizing employment rates, stabilizing prices and interest rates.

One of the responsibilities or purpose of the Fed, is to creating the nation’s monetary policy by persuading money and credit conditions in the economy to gain full employment and stable prices. Another job the Fed had was watching and instructing banks, and other important financial institutions. To make

The Federal Reserve System is the most powerful institution in the United States economy. Functioning as the central bank of the United States, acting as a regulator, the lender of last resort, and setting the nation’s monetary policy via the Federal Open Market Committee, there is no segment of the American economy unaffected by the Federal Reserve [endnoteRef:1]. This power becomes even more substantial in times of “unusual and exigent circumstances,” as Section 13(3) of the Federal Reserve Act gives authority to the Board of Governors to act unilaterally in lending and market making operations during financial crisis[endnoteRef:2]. As illustrated by their decision making in the aftermath of the 2007-2008 Great Recession,

The federal government responded to the crisis that affected businesses and Industries many ways. The Federal Reserve has been most successful in its double full-employment, low inflation mandate when it relies on fixed rules, and keenly looks on the intermediate term rather than trying to respond to short-term developments under political pressure. A number of policies were resolved to react on the emphasis of intermediate term stability on the handling of the

United States Federal Reserve system, also known as Federal Reserve or simply “Fed” is the United States central banking system. The Federal Reserve took inception in 1913, after the adoption of the Federal Reserve Act. The United States Congress has mandated three macroeconomic objectives to the Federal Reserve. These are minimum levels of unemployment, prices stability and keeping in check the rates of interests. Over the years, the role of Federal Reserve has expanded. It now formulates the country’s monetary policies, conducts supervision and regulation of the banking institutions, maintenance of the financial

he Federal Reserve is the central banking system of the United States, which controls the monetary policy of the US (Hubbard). When first conceived in 1913 its primary function was to protect banks, but, in part due to the Great Depression, the role the Federal Reserve plays in the economy has evolved into something much more influential. Ben Bernanke, the Federal Reserve chair from 2006-2014, said in a speech in 2002 while he was still just a board member regarding the Federal Reserve’s role in the Great Depression: “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again” (Moratta). This was an important admission that showed the flaws in the Federal Reserve’s decisions back then, while also foreshadowing the role it will have in the Great Recession of 2007-2009. The Federal Reserve today has a much wider range of functions within the economy and government, and it is one of the major influences not just in the US economy and financial system but the world as well.

Ben Bernanke has been an instrumental component to the American economy. His legacy will always be tied to the policies he implemented over the years. Bernanke has a well-established history that explains why he was qualified to lead the Fed. The economic environment he entered into has change greatly during his eight years in office. The events of the financial crisis forced him and the Fed to take on certain policy actions to keep the economy afloat. His strong emphasis on transparency has changed the Fed for the better. Even after his time Bernanke would be subject to criticism as well. Even so, Bernanke put his expertise to the test during his time in office.

Ben Benanke served as a Federal Reserve as chairman from 2006 to 2014 according to biography, Ben Benanke Biography. During Ben Benanke tenure as Fed chairman the economy was slightly stronger as it indicates the Federal Reserve of Saint Louis on its 2006 statement. Although thereafter the economy started to derail consequently due to the subprime mortgages practices and the unleashed behavior that many bankers sway through as the gambled with other people’s money as they pleased. However, Ben Benanke monetary approach was categorized as the most aggressive, thus carefully set, and frugal at all times. According to CNBC article the FED, Mr. Benanke said the central bank could have done more to fight the country’s financial crisis and he

Monetary policy uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending . “The object of monetary policy is to influence the nation’s economic performance, as measured by inflation”, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by

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 Economy is the backbone to society. There are many factors that operate in, and govern our society’s economical structure. Factors such as scarcity and choice, opportunity cost, marginal analysis, microeconomics, macroeconomics, factors of production, production possibilities, law of increasing opportunity cost, economic systems, circular flow model, money, and economic costs and profits all contribute to what is known as the economy. These properties as well as a few others, work together to influence the economy. Microeconomics and Macroeconomics are two major components. Both of these are broken down into several different components that dictate societal norms and views.

Generally, interest rates are positive, but they can also be negative due to the monetary policy by government. A negative interest rate is defined as “an interest rate below zero, in which the person, bank, etc. lending the money pays interest to the one borrowing the money” in dictionary.cambridge.org. In other words, a negative interest rate means banks must pay people or firms if they loan money from banks. Furthermore, a negative interest rate also means people must be charged if they put their money in savings account of a bank. Thus, this policy is major to encourage everyone instead of hoarding their cash but spending, investing, and extending more loans.