Essay on Opposing Views of the Effectiveness of Monetary Policy

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

Francisco, F. R. (2004, February 06). U.S. Monetary Policy: An Introduction. Retrieved from How does monetary policy affect the U.S. economy?: http

The lackluster effort of the Fed to control the money supply shows their true hand. In the mid to late 70s, the increasing inflation had gone out of control, and Volcker made it his mission to stop that inflation. To the members of the Federal Reserve Board, this policy was clearly to reduce inflation, but market outsiders were confused by the Fed’s switch in policy, and scared by the volatility of the money supply. In 1981, the uncertainty of Federal Reserve policy could be seen in the bond markets, which rely heavily on stable interest rates. According to Greider, the bond market had a “traumatic seizure” that could best be described as an “anxiety attack” in April of 1981, as a result of the monetary policy pursued by the Fed, which fundamentally abandoned the control of interest rates (Greider 374). With the new policy, the Fed caused interest rates to fluctuate with the money supply, which relies heavily on the velocity of money, or the amount of times money changes hands over an interval of time. Monetarists believed that the velocity of money was constant, and criticized the Fed for not simply increasing the money supply slowly over time, but tit became clear in the early 80s that the velocity was not constant at all. Even though

Before the Great Depression began in the United States in 1929, President Woodrow Wilson created a very critical sector to the financial aspect of government, the Federal Reserve. The Federal Reserve was created to act as a central bank that would oversee the monetary funds and “reserves,” of the country, as well as manage the banks and implement certain economic policies. Although some policies were deemed successful, bank failures during the 1920’s and 30’s were essentially unsuccessful as a result of Federal Reserve mismanagement. This mismanagement further worsened the economy during the Great Depression as it increased the amount of debt and bankruptcy, all while failing to resolve the deflation issue.

The group worked around the clock, grappling with questions such as who would own the central bank, how many institutions it would contain, and how open market operations would be conducted (Diaz-Unzalu and Maze). In December 1913, the Federal Reserve Act established the Federal Reserve System to remedy the conditions underlying the money crisis that had overwhelmed the countries financial crisis for many years. Congress has amended the act several times since to develop the Fed's ability to foster a sound financial system and a healthy economy. Today, many economists are critical of the Fed’s decisions in the early 1930s because they believe the decisions made by the FED’s, declining to make loans to banks based on poor business decisions of the banks, increased the severity of the Great Depression (Hubbard, R. G., and O’Brien,

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.

Monetary policy is a more effective lever to reduce unemployment and smooth the business cycle, due to its shorter implementation lag and ability to act in small multiples.

The Great Depression is undoubtedly one of the most significant events in American and world history. It was the most widespread depression in the 20th century affecting most nations in the world and lasting for as long as a decade. However, there still remain unanswered questions regarding the cause of the great depression. One of the most debated topics regarding the Great Depression continues to be the role of the Federal Reserve (Fed) in causing and prolonging the crisis. The Federal Reserve, the central banking system of the United States, was created on December 23, 1913, with the enactment of the Federal Reserve Act, primarily in response to a series of financial panics in 1907. The Fed had being in existence for 15 years before the

The Federal Reserve went into action in response to the 2008 recession by rapidly reducing interest rates with the hopes of encouraging economic growth. The federal funds target rate was decreased to between zero and .25 percent. The results of the rate changes caused what is called “zero bound”, this reduced the effectiveness of monetary policy with the near non-existence of interest rates.

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.

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

The recent recession lasting from 2007 until 2009, and the effects of which are still highly visible in the U.S. economy, led the Federal Reserve to use new and largely untested methods for protecting the country from a total financial collapse. The new strategy, which blurs the lines between monetary and fiscal policy, had been attempted only once before, and is open to criticism from several difference angles. This report documents the history, purpose, and controversy surrounding quantitative easing as a strategy to mitigate the effects of the recent recession. After considering these factors, the conclusion is drawn that quantitative easing was a modestly successful policy, yet one which should not be employed again. Although

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

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.

| 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