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How Does Monetary Policy Affect Macroeconomics

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How Does Monetary Policy Affect Macroeconomics
Monetary policy and its effect on macroeconomic factors
Michele Fludd
MMPBL/501
April 11, 2011
Caryn Callahan, Ph.D.

Monetary policy and its effect on macroeconomic factors
The extremely large number of money exchanges that occurs each day all over the world form a highly complex web that is very resistant to analysis. However, it must be understood that the basis rules of money creation that govern these exchanges are readily understood and very simple. How money works is a little complex, however the effects it has on the macroeconomics factors such as GDP, unemployment, inflation, and interest rates can become very complex indeed. This paper will discuss monetary policy and its effect on macroeconomic factors such as GDP, unemployment, inflation, and interest rates. The paper will also explain how money is created. Ultimately, the goal of this paper is to which combination of monetary policy will help best achieve a balance between economic growth, low inflation, and a reasonable rate of unemployment.
Monetary policy …show more content…
The media give prominent coverage to the statements and speeches by Federal Reserve officials because everyone knows that the
Fed can send interest rates tumbling as it attempt to keep the economy on the path to non-inflationary growth. Wall Street reacts almost daily to any sign that worsening inflation might cause the Fed to tighten, or that a weaker economy might convince the Fed to ease. This acknowledgment of the importance of monetary policy is relatively recent and arose largely from the failures of monetary policy rather than its successes. The Fed would have to slow money growth by raising interest rates; this would be the only way to win the war against inflation. This appears to be the only way to decrease inflation by slowing the economy down, and then the interest rates will
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