monetary policy

Topics: Monetary policy, Federal Reserve System, Central bank Pages: 3 (650 words) Published: October 22, 2013

Economics Paper

Monetary Policy

The term 'Monetary Policy' refers to what the Federal Reserve (Fed) and the National Central Bank does to influence the amount of money and the credit of the U.S. Economy. What happens to money and credit affects the interest rate and the performance of our economy. The definition of the Monetary Policy is the regulation of the money supply and interest rates by the central bank and the Federal Reserve Board, in order to control inflation and stabilize the currency. The Monetary Policy is one way the government can impact the economy.

The goals of the Monetary Policy is to maximize employment, stabilize prices and moderate interest rates. The Monetary Policy is the management of expectations of the economy, supporting the long-term economic growth and employment. The Monetary Policy is the relationship of interest rates and the economy, the price at which money can be borrowed and the total supply of money. The Monetary Policy began in the 19th century to maintain the gold standard. Today the monetary authority has the ability to alter the money supply. The most powerful person (after the president) in the United States is the chairman of the Board of Governors of the Federal Reserve System. The person that controls the money, controls the world.

There are three instruments (tools) the Federal Reserve uses to implement the Monetary policy, open market operations, the discount rate, and reserve requirements. In the open market operations the securities dealer compete on the basis of price to do business with the Fed. This tool consist of Federal Reserve purchases and sales of financial instruments (securities) from the U.S. Treasury, Financial agencies or other government sponsored enterprises. Trading securities the Fed influences the amount of bank reserve, that affect the federal fund rate, and the overnight lending rate that banks barrow reserves from each other. Open market operations are flexible and the most...

Cited: Web Finance, Inc. 2013
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