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The Monetary Policy in the U.S.and the UK - Term Paper Example

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The paper 'The Monetary Policy in the U.S.and the UK' presents monetary policy which is used by the governments, central banks, or monetary authorities that manages the supply of money in order to control inflation or deflation, fluctuations in the exchange rate…
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The Monetary Policy in the U.S.and the UK
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Download file to see previous pages In this paper, the historical strategy used in the monetary system of the U.S. and UK will be elaborated. Through the historical events associated with the U.S. and UK monetary policy, we will be able to conclude whether monetary policy is boring or not.
Many people have been praising the work of Fed Chairman Alan Greenspan i for making the U.S. monetary policy in the 1990s very successful. (Mankiw, 2001) The Fed was at the center stage during the Asian financial crisis between the years 1997 – 1998 including the failure of hedging the Long-Term Capital Management of funds in 1998 created a worldwide financial crisis and Globalization in the 20th century. The U.S. monetary policy together with the help of fiscal discipline, the U.S. government budget deficit was converted into a surplus.
Prior to the Mexican crisis in 1994 and the Asian crisis in 1997, the economic performance of the U.S. has been very stable. At that time, the real GDP growth of the U.S. has increased more than 3% over the fourth quarter of 1996, inflation and the unemployment rate was maintained at a low level. Because of the continuous economic growth in the U.S., the nominal wages and salaries of the workers increased faster than the prices of commodities. The increase in salary and wages resulted in increasing the efficiency of production output by investing in new technologies. During the last quarter of 1996, a lot of companies have been laying off employees. This causes the U.S. unemployment rate to increase. Also, consumer debt, credit card delinquencies and personal bankruptcies were very high.
In February 1997, the Federal Reserve became very concern about the risk of inflation because of the sudden appreciation of the U.S. dollar. During the height of U.S. economic activities, high inflation should be avoided since it would weaken the long-run economic growth of the country. Inflation would definitely interfere with the efficiency of resource allocation by destabilizing the prices of raw materials.   ...Download file to see next pagesRead More
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