Macroeconomic Impact on Business Operations The following analysis will be conducted on the Macroeconomic Impact on Business Operations. This analysis was conducted to observe the affects of monetary policy on macroeconomic factors that influence GDP, unemployment, inflation, and interest rates. It will also identify tools used by the Federal Reserves to control money supply, explain how these tools influence the money supply and macroeconomic factors, elucidate how money is created, and give a recommendation on monetary policy. Tools used by the Federal Reserves to Control Money Supply The Federal Reserves has an immense impact on the macroeconomic business operations of the government. The three sets of tools that allow the Chairman of the Federal Reserves to steer, influence, and control money supply are going to be identified in detail in this analysis. Banks borrow money in order to lend money, and money stimulates the economy, and the Spread between the Discount Rate (DR) and the Federal Funds Rate (FFR) is one of such tools that provide this type of control. The two main sources to borrow money from are the Federal Reserves and other banks. If the Federal Reserves charges a DR lower than the FFR (which is offered by banks), then the bank would be inclined to take advantage of this discount. So, if the DR decreases the spread between DR and FFR increases, this simply has the affect that banks will likely borrow more money from the Federal Reserves instead of other banks. At the same time, this influences the macroeconomic business operations of the government, since the total amount of money in the system is increased, and this allows more consumers to borrow money to spend more money. This is a typical multiplier effect scenario. However, if the DR increases, the spread will end up positive, and banks will borrow from other banks.
Before we begin our investigation, it is imperative that we understand the historical role of the central bank in the United States. Examining the traditional motives of this institution over time will help the reader observe a direct correlation between it and its ability to manipulate an economy. To start, I will examine one of its central policies...
In this paper I will explain which of the monetary tools available to the Federal Reserve are most often used and the reasons for that. I will also describe how expansionary activated conducted by the Federal Reserve impact credit avilaiblilty, the money supply, interest rates and security prices, and to conclude I will show the result of the transactions in the form of a balance sheet supposing the Federal Reserve
The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession.
The Discount Rate increased in small numbers during the first five months in 2000. This would most likely mean that the Fed (Federal Reserve System) was trying to build their reserves which would discourage commercial banks from borrowing from Federal Reserve Banks. This is known as a tight money policy when the overall objective is to tighten money supply to reduce spending and control inflation. The remainder of the year in 2000 the Discount Rate stayed at 6%, which is the highest point during 2000-2001.
Over the past few years we have realized the impact that the Federal Government has on our economy, yet we never knew enough about the subject to understand why. While taking this Economics course it has brought so many things to our attention, especially since we see inflation, gas prices, unemployment and interest rates on the rise. It has given us a better understanding of the effect of the Government on the economy, the stock market, the interest rates, etc. Since the Federal Government has such a control over our Economy, we decided to tackle the subject of the Federal Reserve System and try to get a better understanding of the history, the structure, and the monetary policy of the power that it holds.
Open market operations directly affect the money supply through buying short-term government bonds (to expand money supply) or selling them (to contract it). Benchmark interest rates, such as the LIBOR and the Fed funds rate, affect the demand for money by raising or lowering the cost to borrow—in essence, money's price. When borrowing is cheap, firms will take on more debt to invest in hiring and expansion; consumers will make larger, long-term purchases with cheap credit; and savers will have more incentive to invest their money in stocks or other assets, rather than earn very little—and perhaps lose money in real terms—through savings accounts. Policy makers also manage risk in the banking system by mandating the reserves that banks must keep on hand. Higher reserve requirements put a damper on lending and rein in inflation.
The Federal Reserve is the central bank of the United States of America. The Federal Reserve has the ability to directly influence the economy. The purpose of the Federal Reserve is to create and maintain a stable monetary and financial policy, when this goal is achieved Americans are more likely to trust the government with their money. If Americans trust the government with their money, then the people will deposit their money into banks, which the banks will then lend out boosting the economy. Since the Federal Reserve is associated with the government, many citizens believe that monetary policy will emulate the current president’s views and opinions. While what the president does will affect the economy and consequently the Federal
With many unemployed and the market reaching The Great Recession as many economist call it, the Federal Reserve started to step in to try and save the economy and some of the economic crises that were occurring. The Federal Reserve began to buy many financial assets from banks who were in trouble by these lenders and suppliers who had loans the...
The purpose of this is to draw attention to the invisible government which controls the United States. One of the means of control is the Federal Reserve System. Many of us have seen the recent decline of the dollar in the news. We will address this in terms of the Federal Reserve System’s control over the value of the dollar. Much of this is a concentration of quotes by noteworthy individuals such as Economists, Presidents, and Congressmen.
Author Unknown (1994). The Federal Reserve System: Purposes and Functions (5th ed.) Published by Library of Congress
The first major aspect of the monetary policy by the Federal Reserve is its interest rate policy. This interest rate policy is mainly determined by the figure for the federal funds rate, which is the rate at which commercial banks with balances held within the Federal Reserve can borrow from each other overnight in ord...
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
As we are moving to the end of the course, we want to present you with the Federal Reserve System (Fed), which is the central bank of the USA. We are going to explore the roles of Fed in regularizing the economy, its function, and also the tools used in doing that. We will learn how central banks regulate the banking system and how they manage money supply in economies. We will also be presented to the financial crises lessons we can be able to understand the importance of the regulatory system; and then, we answering questions such as:
The Federal Reserve use several tools like discount rate, federal funds rate, required reserve ratio and open market operations to control the money supply. In the simulation, the effect of controlling the money supply on the economy was presented. Typically, releasing money into the system results in higher Real GDP and lower unemployment. On the other hand, it also raises inflation.
Impact of monetary policy on the economy a regional Fed perspective on inflation, unemployment, and QE3 : Hearing before the Subcommittee on Domestic Monetary Policy and Technology of the Committee on Financial Services, U.S. House of Representatives, One. (2011). Washington: U.S. G.P.O.