Monetary Policy :: essays papers

Monetary PolicySummary The fresh tax compresss and engagement rate cuts have helped put the economy endure on track. He says that the strong growth of the U.S. economy in juvenile months is neither an illusion nor an accident, but it reflects good monetary and fiscal insurance over the past year. He says that there has been a key charge in consumer spending, and that the main reason for that surge was the enactment of the tax cut in early 2001. He also stated that the repeated reductions by the Fed in short-term interest rates supported the expansionary inwardness of the tax cut. Even though the interest rate reductions were not adequacy to prevent the recession that began in March of last year, the lower interest rates did didder consumer spending finished a variety of channels. abridgment This expression is also a good example of how the aggregate direct curve can be shifted by the determinant of monetary policy. interest refer again back to obligate 4, which e xplains the principle of the aggregate requirement curve. By definition, Monetary Policy is a policy influencing the economy through changes in the banking systems reserves that influence the coin interpret and credit availability in the economy. The purpose of monetary policy is to repair the economy by either increasing or decreasing the current income (or GDP) of the U.S. economy so that the economy is running at its potential. The Federal halt (The Fed) is responsible for conducting monetary policy for the United States Economy. There are one-third ways that the Fed conducts monetary policy 1) Changing the reserve requirement. 2) implementation open market operations (buying and selling bonds). 3) Changing the discount rate. This article talks about the Fed decreasing the discount rate to stimulate the economy. The discount rate is the rate of interest the Fed charges for loans it makes to banks. An increase in the discount or interest rates makes it more expensive for banks to suck from the Fed. A discount rate decrease makes it less expensive for banks to borrow. This article is talking about how the Fed decreased the discount rate devising it easier for banks to borrow, increasing the capital supply. The decrease in the discount rate increases the money supply because it lowers the bank=s costs and allows it to borrow more money from the Fed.