It is important to understand the policies and procedure that drives the success of this great nation. There are several key tools and methodologies that are utilized in creating a consistent flow within the monetary policy which will be discussed.
The six major tools that the government utilizes to control the money supply are the focal point. The Spread between the Discount Rate and Federal Funds Rate, extrapolates the process by which banks are given the privilege to borrow from the Federal Reserve if the discount rate charged is lower than the Federal Funds Rate Charged. In addition, if the spread is considered positive, the banks can also borrow other bands thus not affecting the money supply. Required Reserve Ration is the “percentage of deposits that any bank holds as reserves (at its vaults or with the fed). Open Market Operations are a combination of T-bills, bonds and other Federal Finances sold to investors. Real Gross Domestic Product is described as “higher levels of money in the system that act as spur for both investment and industrial/consumer demand.” Inflation Rate is explained as the increased amount of money in the system holding the same value but chasing the same amount of goods.
The tools mentioned above are necessary to understand the monetary policy that governs this great nation. The monetary policy is described as the “deliberate changes in the money supply to influence interest rates and the total level of spending in the economy.” (Brue and McConnell) In direct relation to gross domestic product, the amount of assets and demands are considered the brought together to determine a specific interest rate that will be accumulated. Brue and McConnell describe two different types of monetary policies that influence important factors in the market. When a situation of unemployment and recession occurs, Brue and McConnell explain “the Federal government decides that an increase in the supply... [continues]
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