Monetary Policy On The Connections Between Money, Banks, And Credit

960 WordsMay 2, 20164 Pages
This paper focuses on Monetary Policy, which centres on the connections between money, banks, and credit to lenders. In addition, this paper will cover the effect on macroeconomic factors such as GDP, unemployment, inflation, and interest rates. With many combinations of monetary policy, the paper covers the optimal balance between economic growth, low inflation, and a reasonable rate of unemployment. Money is any object that functions as a means of exchange that society accepts social and legal payment for goods and services and in settlement of debts. looks at the nature and value of money, and its effect on determining monetary policy. In an article by Von L Mises he explaines that moneys only could come about after there was a demand for the money commodity in a barter economy (Mises, V. L. (1953). The Theory of Money and Credit. New Haven, Conn, 439). The private sector exerts enormous demand, which it largely financed out of the liquidation of its holdings of short-term government paper, which forces banks to call the activation of its liquid reserves. "The treasury, in order to repay this short-term paper, had to fall back upon money creation by borrowing from the banking system" (Holtrop, M. (1972). On the Effectiveness of Monetary Policy. Ournal of Money, Credit & Banking,, 4(2), 287). Banks create money in an effort to attract borrowers to take out loans. This allows the Feds to increase money creation for many sources of financing for budget deficits in all

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