Name: Instructor: Course: Date: The monetary policies of the United States and other countries Monetary policies refer to the process through which financial authorities of a nation control money supply, particularly regarding interest rate to achieve sets of objectives aimed at economic growth and stability…
Download file to see previous pages...
Furthermore, since the US is essentially the largest economy globally, its monetary policies also encompass substantial financial and economic effects locally and international. Monetary policies influence the performance of countries’ economies as indicated through factors such as economic output, employment rates and inflation. In the US, the Federal Reserve controls the country’s monetary policy. The US federal government uses the country’s monetary policy to control the economy. When money supply grows too fast, inflation rate also increases and conversely, when money supply is too low; economic growth also declines rather substantially. The US Federal Reserve uses the country’s monetary policies to establish inflation targets aimed at sustaining steady inflation rates of between 2 and 3 percent. The purpose of the US monetary policy is to dictate the performance of the economy as indicated through employment rates, inflation and other equivalent economic factors. Monetary policies work by influencing demand within the economy, particularly with regard to companies and people’s willingness to spend money on products and services (Havrilesky 73). This influence is one of the most positive effects of US monetary policies. Another notable consequence of the US monetary policies is to deterring inflation expectations from spiraling to high magnitudes. This is particularly because inflation expectations are an integral determinant of the prevailing inflation rates. Therefore, monetary policies aim at maintaining long term inflation expectations anchored. Stability in inflation expectations emanates from effective monetary policies. In essence, the populace’s belief that inflation will remain stable over the long term lies in its belief that the Federal Reserve’s monetary policy will effectively deliver stable and low inflation in the long term. In addition, monetary policies affect the national economy, especially with regard to financial markets (McConnell and Brue 303). Whenever the Federal Reserve increases monetary supply and enhances the availability of credit, interest rates, which influence the amount of money borrowers pay for loans, will decrease substantially. The US policy allows the Federal Reserve to regulate interest rates and maintain low rate to encourage businesses to borrow investment capital. Low interest rates also stimulate individuals to borrow money to buy goods such as real estate and automobiles. For instance, in the late 1970s, the US monetary policy provided loan interest rates of 8% and an inflation rate of at least 10%. This led in diminished borrowing as financial institutions reduced their lending. However, monetary policies produce adverse results when money and credit supply grows at a faster rate than production of products and services. This phenomenon pushes prices up and ultimately results in an increased inflation rate. Ineffective monetary policies cause inflation, which is a serious issue, particularly for most Americans who live on fixed earning. This is because such people’s income remains constant while their capacities to purchase goods and services decreases (Everett 175). When banks anticipate high inflation, they increase interest rate to cushion themselves against losses. When money and credit supply grows rather slowly, interest rates are likely to rise, resulting in decreased spending on investments, as well as conventional, durable
...Download file to see next pagesRead More
Cite this document
(“The monetary policies of the united states and other countries Research Paper”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1458661-the-monetary-policies-of-the-united-states-and
(The Monetary Policies of the United States and Other Countries Research Paper)
“The Monetary Policies of the United States and Other Countries Research Paper”, n.d. https://studentshare.org/macro-microeconomics/1458661-the-monetary-policies-of-the-united-states-and.
Central banks also acts as the government banks bank and the government lend or borrows through it. It also acts as the lender of last resort to the financial sector during the financial crisis. It is through the central bank that the government borrows from the public through the issue of treasury bonds and bills.
United States Economy
We are going to look at the industries that have become additionally important in the United State economy and how the government is taking over the share of the nation’s output. The growth of people’s income, the distribution of people’s income among many more will be addressed.
For many years, the people who study Economics, especially in the field of macro-economics, have given an utmost importance on the study of monetary policy. It is very crucial in understanding the economic system of one country.Many people consider the country’s monetary policy as a complex economic subject.
In fact, there is already a sharp contrast between the two powerhouse countries. Whereas the United States is heavily burdened by debt, China enjoys the distinction of having the most Gross International Reserves (GIR) Thus, in effect, the US has become the highest debtor while China has become the biggest creditor (Financial Ranks 2008).
The most reliable measure of inflation levels is the overall consumer index (CPI-U). CPI-U measures the average price of a fixed set or basket of goods and services. Various economies of the world have been experiencing an increasing rate of inflation over the past decade.
It has been mostly observed in international politics that the U.S. mostly sets its objectives with the aim to protect its own national benefits in foreign policy. When it comes to evaluating its relationship with Israel, it is clearly understood that the U.S. doesn’t consider this approach.
Fed employs the following monetary policy tools to maintain economic stability: defining a discount rate, establishing reserves requirements and open market operations (Brezina p.52). Therefore, this research will focus to investigate effects of the monetary policies applied by the Fed as discussed below under several sub-headings.
In the wake of policy rates approaching and ultimately getting stuck in their lower bounds, such central banks have had their balance sheets replace the interest rates as the instrument of the main policy. The result of the above move was that the estimated models over the economic crisis period with short-term interest rates.
The economy of the United States has experienced high levels of price rise in the volatile 1970's, and as a result price stability became a major issue with policy makers. However these measures may actually put a brake on the growth rate of the economy and result in the rise of unemployment (The Structure of Central Banks: The Federal Reserve and the European Central Bank n.d).
ody mass index greater than 30 or a BMI range between 18 and 24.9 (Menon, 39).Using BMI to determine obesity is not always accurate especially for people with large frames and a lot of muscle mass. In addition, experts in the medical community don’t recommend using BMI as a
7 Pages(1750 words)Research Paper
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Research Paper on topic The monetary policies of the united states and other countries for FREE!