Monetary Policy: Carried Out By The Federal Reserve

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Monetary Policy Aaron Ashburn MMPBL/501 Feb-21, 2011 Dr. George Sharghi Introduction There is a consensus among analysts regarding the ability of economist’s to accurately forecast inflation, and consequently it appears that the relationship between real economic activity and inflation is ambiguous. It is the Fed's job to do what it can to reduce unemployment in order for the economy to sustain and to make sure that inflation returns to a level more consistent with its mandate. The central focus of U.S. monetary policy is price stability. Thanks to its control of money markets and banks, the Fed influences interest rates, asset prices, and credit flows throughout the financial system. To help attain inflation goals the Federal…show more content…
Monetary Policy is used to make changes in the nation’s supply of money. These changes affect interest rates which affects the amount of spending. Monetary policy is supposed to get price levels stable increase employment and grow the economy. In chapter 15 of our text it shows a consolidated balance sheet of the Federal Reserve Banks. The Federal Reserve Banks (there are twelve Federal Reserve Banks) are really a “banker’s bank” (McConnell, Brue 2005). It kind of says so on the balance sheet because one of its assets is loans made to commercial banks. Commercial banks that borrow from the Federal Reserve Banks must pay back this…show more content…
There is almost always waste associated with industry and production. The negative social effects of this waste are not deducted from GDP. “Ironically, when money is spent to clean up pollution and reduce congestion, those expenses are added to GDP” (McConnell & Brue 2005). Conclusion Some data suggests, “positive fiscal impulses are expansionary, particularly where they do not create fiscal credible issues and are expected to be sustained” (Reserve Bank of New Zealand). A government tax and spend plan is its fiscal policy. All business cycles go through phases. The length and intensity for each business cycle differs from one company to the next. Many economists believe different things about the ups and downs (peaks & troughs) of a business cycle. One thing we can be sure of is that a business cycle affects different sectors of our community in different ways. Gross domestic product is a great measure of an economies growth. The chair of the Federal Reserve uses information gathered from GDP to assist with making necessary adjustments to keep a balance between inflation and unemployment.
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