Monetary Policy Monetary Policy The Economy is the backbone to society. There are many factors that operate in, and govern our society’s economical structure. Factors such as scarcity and choice, opportunity cost, marginal analysis, microeconomics, macroeconomics, factors of production, production possibilities, law of increasing opportunity cost, economic systems, circular flow model, money, and economic costs and profits all contribute to what is known as the economy. These properties as well as a few others, work together to influence the economy. Microeconomics and Macroeconomics are two major components. Both of these are broken down into several different components that dictate societal norms and views. “Microeconomics and macroeconomics can be described in terms of small-scale vs. large-scale or in terms of partial vs. general equilibrium. Perhaps the most important distinction, however, is in terms of the role of equilibrium. While issues in microeconomics seldom challenge the notion of a naturally occurring equilibrium, the existence of business cycles and, especially, unemployment suggests too many observers that macroeconomics raises issues of a different character.” (McConnell & Brue, 2004). 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). Monetary Policy What is Monetary Policy? “Monetary... ... middle of paper ... ...l Reserve, 2008). The economy is an ever changing organism that acts and reacts according to the stimulus of various factors and the consumers. References Federal Reserve. (2008). FRB: Monetary Policy Report to the Congress. Retrieved July 4, 2008, from www.federalreserve.gov Federal Reserve Bank of San Francisco. (2007). U.S. Monetary Policy. Retrieved July 3, 2008,from http://www.frbsf.org McConnell, Campbell R., & Brue, Stanley L. (2004). Economics: Principles, Problems and Policies 16e. [University of Phoenix Custom Edition e-text., : McGraw-Hill Companies. Retrieved July 4, 2008, from University of Phoenix, MMPBL-501 Web site. University of Phoenix . ( 2008). Economics for Managerial Decision Making [Computer Software]. Retrieved July 3, 2008, from University of Phoenix, Simulation, MMPBL-501 Web site
This article is also a good example of how the aggregate demand curve can be shifted by the determinant of monetary policy. Please refer again back to article #4, which explains the principle of the aggregate demand curve. By definition, Monetary Policy is a policy influencing the economy through changes in the banking system’s reserves that influence the money supply and credit availability in the economy. The purpose of monetary policy is to improve the economy by either increasing or decreasing the real income (or GDP) of the U.S. economy so that the economy is running at its potential. The Federal Reserve (The Fed) is responsible for conducting monetary policy for the United States Economy. There are three ways that the Fed conducts monetary policy: 1) Changing the reserve requirement. 2) Executing open market operations (buying and selling bonds). 3) Changing the discount rate.
Seldom do individuals realize the significance of acquiring a proper understanding of economics as a whole, let alone any subfields that branch off of it. Every aspect of economics is relative to another within itself, much like the roots of a tree are relative to the leaves or fruit that it bears. Attempting to distinguish between micro and macroeconomics in terms of significance to the real world is unavailing. Having a formal comprehension of this science begins with the principles and theor...
The Federal Reserve Board uses three monetary tools that affect macroeconomics such as unemployment, inflation, and interest rates, and control the money supply; these tools are known as discount rate, reserve requirements, and open market operations. In The Economy Today Schiller 2010 states that “Monetary Policy is the use of money and credit controls to influence macroeconomic outcomes” (p.309.) It also refers to the actions assumed by the Federal Reserve Board.
To understand the world we live in today, we need to understand what economics is and where it came from. Economics is the social science concerned with the production and consumption of goods, services, and the analysis of the commercial activities of a society. Economics also deals with the choices we make to fulfill our wants and needs and how we spend and invest our money. It is split into two main parts known as macroeconomics and microeconomics. Macroeconomics is the study of national or international economies while microeconomics studies individuals or firms within the economy. Adam Smith is widely known as the founding father of modern day economics, but it is actually an Irish banker Richard Cantillon. Richard Cantillon wrote his book “Essai sur la Nature du Commerce en General" which translates to “An Essay on Economic Theory” in the 1730’s
Monetary Policy involves using interest rates or changes to money supply to influence the levels of consumer spending and Aggregate Demand.
In conclusion, economy is the study of production, distribution, and consumption of wealth in the human society. All these things have a position in our everyday lives like paying taxes in food, making sure your doing your best at work in order to not be unemployed. Raising the price on a good due to increase of labor prices and raw materials which is the result of a cost-push inflation. The Federal Reserve System is the main privately owned controlled central bank of the united states that is keeping the money flowing to our pockets and bank accounts, otherwise people would be having scavenger hunts looking for pennies, and dimes all over town. All these systems in the economical world are keeping the world happy like they say “money makes the world go round”.
Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic growth and stability by creating relatively stable prices and low unemployment. A monetary policy mainly deals with the supply of money, availability of money, cost of money and the rate of interest to attain a set of objectives aiming towards growth and stability of the economy. Here are some of the monetary policy tools:
Although most economists cannot come to agreement on the definition of economics, the preceding quote from l. Robbins, in my opinion, seems to just about sum it up. Since the beginning, when man first had to choose between hunting and sleeping, there was economics. Today economics is in everything we buy, use, and make, from the gas in our cars to the food on our tables, economics plays a vital role with the manufacture, distrubution and consumption of each. To help us better understand the economic trends, certain men have become economist. In this paper I will revisit four of the major economists’ theories. Starting with the theories of Adam Smith, a philosopher well as an economist, to the modern (relatively) day theories of Milton Friedman, a Nobel Prize awardee, we will chronologically review the theories of Adam Smith, Karl Marx, John Maynard Keynes, and Milton Friedman.
Microeconomics is the study of the choices made by households, firms and government and how these choices affect the markets of goods and services (O'Sullivan, Sheffrin & Perez, 2014).
Kroon, George E. Macroeconomics The Easy Way. New York: Barron’s Educational Series, Inc., 2007. Print.
The study of economics is important to everyone. Financial decisions affect everyone in their day-to-day routines. Economics is the study of how society manages its scarce resources (Mankiw, 2012). Macroeconomics is the study of economy wide phenomena, including inflation, unemployment, Gross Domestic Product, and economic growth (Mankiw, 2012). Macroeconomics is important because, it is how all of us relate into markets and economies. Many news articles today are centered on the economy and current events. One of these articles lends itself to many economic principles and ideas. Even though there are many important topics not covered in the article, the article titled, "You Are What You Owe" in Time, encompassed many general economic principles as well as the many macroeconomics indices illustrated in the article.
Macroeconomics presents the educational function to help students become the future economics specialist, forming a critical thinking about the complex functioning of the contemporary economy. Thus, the field of study of Macroeconomics has evolved over time, through a long process of confrontation of various theories of thinking and economic application. Moreover, Macroeconomia investigates the economy at a national level as a whole, targeting the aggregation of individual economic behaviors across the economy as well as the resulting global effects: unemployment, inflation, cyclical development, imbalance in external economic exchanges, external economic relations.
Macroeconomics flows on a wide area rather than microeconomics. It describes about the structure & the behavior of whole economy. It consists of larger concepts such as inflation of the country, unemployment, international trade & market, national demand etc.
What is Microeconomics? This question was left unanswered when I initially enrolled in this course. Microeconomics is the social science that studies the implications of individual human actions, specifically about how those decisions affect the utilization and distribution of scarce resources. Microeconomics shows how and why different goods have different values, how individuals create more efficient or more productive decisions, and how individuals best coordinate and cooperate with one another. Microeconomics does not try to explain what should happen in a market, but instead only explains what to expect if certain conditions change. For instance, If the price of the new iPhone 8 is higher than the previous model will the consumer buy it? There are several elements that will play into getting an answer for this question, but gives you a general idea of what microeconomics entails.
If the situation of the economy will be bad and disequilibrium in economy then two policies are adopted to make the economy stable.