Nobody downloaded yet

Monetary Policy: money, credit, the Federal Reserve, interest - Essay Example

Comments (0) Cite this document
Summary
Originally, the Federal Reserve System was employed to exercise control on member banks’ reserve requirements in order to have a viable degree of liquidity to meet demands for unexpected and large cash withdrawals (Horvitz et al 1993). Such bank reserves are not legally…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.7% of users find it useful
Monetary Policy: money, credit, the Federal Reserve, interest
Read TextPreview

Extract of sample "Monetary Policy: money, credit, the Federal Reserve, interest"

Download file to see previous pages eserve requirements affects current interest rates particularly the short term rates since the reserve operations comprise of the sale and purchase of government securities that are short term (Keleher 1997), thus controlling the prevailing interest rates. Long term rates are likewise affected and can only be sustained through the endorsement of price stability among susceptible sectors of the economy that involves key interest rates (Keleher 1997). Economic stability requires that prices within the broad range of industries must be stable. It follows that an internal balances and external balance must be achieved with regards to the balance-of-payments (BOP) position. If a fixed-exchange rate system is followed, an expansionary monetary policy worsens the BOP position, while a contractionary monetary policy improves the BOP position (Carbaugh 1998). On the other hand, an expansionary fiscal policy directs to a decline of the trade account and a step-up in the capital account. The overall BOP is affected and reliant on the comparative strength of these two conflicting forces in the economy (Carbaugh 1998).
following: 1) the credit standing of the borrower, 2) the differences in maturity of debts or securities and 3) other institutional reasons (Horvitz et al 1993). The economic role of lending is to transfer existent funds from the lender to the borrower (Horvitz et al 1993). Thus, aside from having a good credit standing in order to secure a loan, individual lenders and institutions impose interest rates basically on the yield or output they will eventually gain should the borrower either make a loan for a short or long period of time; which is normally in months or years respectively (Horvitz et al 1993). As such, yields on long term debts will usually fluctuate more in price than short-term debts. Although the rates for short term loans will likewise fluctuate, it will not move as much as those made for longer durations (Horvitz et al 1993). ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Monetary Policy: money, credit, the Federal Reserve, interest Essay”, n.d.)
Monetary Policy: money, credit, the Federal Reserve, interest Essay. Retrieved from https://studentshare.org/miscellaneous/1562890-monetary-policy-money-credit-the-federal-reserve-interest
(Monetary Policy: Money, Credit, the Federal Reserve, Interest Essay)
Monetary Policy: Money, Credit, the Federal Reserve, Interest Essay. https://studentshare.org/miscellaneous/1562890-monetary-policy-money-credit-the-federal-reserve-interest.
“Monetary Policy: Money, Credit, the Federal Reserve, Interest Essay”, n.d. https://studentshare.org/miscellaneous/1562890-monetary-policy-money-credit-the-federal-reserve-interest.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Monetary Policy: money, credit, the Federal Reserve, interest

Current Federal Reserve monetary policy will deter U.S. growth

...global reserve currency because of the lower interest rates. Lower interest rates coupled with the higher level of inflation can effectively deter the international investors to consider US Dollar as a preferred currency. It is also important to understand that higher domestic as well as international debt of US can also result into the higher crowding out effect thus reducing the availability of credit for private sector. Higher crowding out often drives money out of the reach of the private sector thus further reducing the solid chances of economic recovery. Monetary Policy alone is not sufficient Considering the...
6 Pages(1500 words)Thesis Proposal

Federal reserve monetary policy

...to depreciate overtime, if seen in the context of other assets such as land, gold, and silver. It is most liquid of all assets and its store value helps make us transaction. (Functions of Money) Central Bank Manages a Nation’s Monetary System The broad economic goals of monetary policy are full employment, sustainable economic growth, and minimum inflation. The Federal Reserve achieves these goals by regulating and controlling the growth of money and availability of credit. It achieves its goals either by open market operations, altering lending rate or reserve ratio. (The Fed Today) A)...
3 Pages(750 words)Term Paper

Money,banking and the federal reserve system

...fiat money that derives its value from the official status it adopts. This type of money has advantages over the former types in that it does not use other resources apart from the material used in its making and secondly, its supply can be regulated to take care of specific economic needs. However, the challenge remains in production of fake currency (Krugman 415). There are two types of monetary aggregates, denoted by the Federal Reserve as M1 and M2. M1 entails the cash, traveller’s checks and checkable bank deposits. Other near-moneys are inclusive in M2. In the United States, year 2011 September, M1 was equivalent to $2,136.9...
7 Pages(1750 words)Essay

Federal Reserve Policy

...are influenced by aspects other than just interest rates and money supply. In the complex global economy, there are many inter-dependent factors, such as the balance of payments and exchange rates, which influence the long-term stability of the economy. These disruptions eventually ripple through inflation and higher unemployment. The FRB has taken the basic steps needed to stabilize the economy, but have been unwilling to flex its political muscle and enter the public discourse in a meaningful way that could influence policy decisions made outside its own agency. References Bernanke, B, 2008, ' Housing, mortgage markets, and foreclosures', Speech presented at the...
8 Pages(2000 words)Essay

Money and the federal reserve system

...of the commonest names which often come up as one of the strongest financial regulatory bodies in the world is that of the Federal Reserve. The Federal Reserve, often abbreviated as the Fed, being the apex financial institution of USA is responsible for designing the monetary policies of the economy and hence for controlling the flow of money in the nation. Since the amount of money supply is a decisive factor behind the credit availability and hence that of any inflationary developments in an economy, the importance of the institution cannot be slighted. Inflation can often have larger...
4 Pages(1000 words)Term Paper

Macroeconomics - power of the federal reserve in monetary policy

...to influence the monetary system and these are ‘discount rate’, ‘open market operations’ and ‘reserve requirements’ (Federal Reserve Bank of Dallas, n.d.). Among these ‘open market operations’ can be considered as the Fed’s main tool for influencing the monetary policy. There is a committee named Federal Open Market Committee (FOMC) that is responsible for developing monetary policies that are based on ‘open market operations’ (Federal Reserve, n.d.). In open market operations, US government securities are bought and sold in the open market. The primary...
3 Pages(750 words)Term Paper

The Federal Reserve: Monetary Policy

...The Federal Reserve: Monetary Policy The Federal Reserve’s Monetary Policy refers to the various measures the Federal Reserve takes to influence the purchasing power of money, to ensure sustainable economic growth. “The Federal Reserve defines Monetary Policy as the actions it undertakes to influence the availability and cost of money and credit to help promote its congressionally mandated goals, achieving a stable price level and maximum sustainable economic growth.” (Labonte) The Federal Reserve has had three means to achieve this objective: 1. By conducting open market operations that involve the purchase and sale of U.S. Treasury securities 2. By charging banks who borrow from the Federal Reserve at discounted rates. 3... . By...
2 Pages(500 words)Assignment

Federal Reserve Money Train Activity

...Scenario In 150 to 200 words, explain your reasoning for the way you are planning on using Reserve Requirements. Be sure to address the following: 1. How Reserve Requirements affect the economy 2. How your action will affect economic growth 3. Why it is important to increase economic growth 4. Your rationale for the use of Reserve Requirements At the end of the game, you will be provided with this information to give to your instructor. Answer: Reserve requirements are important for adjusting the flow of money in the economy. The reserve requirements can create and control inflation. The economy is very dependent on the ability of the...
2 Pages(500 words)Assignment

Federal Reserve System, Interest Rates and Money Supply (SLP)

...Impact of Interest Rate Changes Impact of Interest Rate Changes inserts his/her Impact of Interest Rate Changes The paper discusses how the recent changes in interest rates made by the Federal Reserve have affected any consumer buying decisions such as buying a new home, refinancing a home, financing a new car, saving more money in bank, etc. Income is a hybrid of savings and expenditures where savings and expenditures are in inverse relation to each other. Changes in major economic variables have a significant impact on the consumer spending. For example, higher interest rates increase the savings and affects consumer spending. According to Engels Laws, with the rise in income, the percentage of income spent on food decreases... but the...
2 Pages(500 words)Essay

Monetary policy: the Federal Reserve Bank of the U.S.A

...credit. The second conventional policy as pointed out in the article is the reserve requirements ratio. This is a measure by which the central bank controls the overall level of deposits that commercial banks maintain with it. This is a key technique in which the liquid cash is maintained within the economy. This policy is however not exercised actively by the bank and the rates had not been revised in the past ten fifteen years. In the current economic scenario, banks are required to maintain an overall of 0% to 10% (Labonte, “Monetary Policy and the Federal Reserve: Current Policy and...
8 Pages(2000 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Monetary Policy: money, credit, the Federal Reserve, interest for FREE!

Contact Us