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The V and Q are fixed so that any change in M causes a proportionate change in P. To control P, it is therefore necessary that M be brought under control. Any policy with respect to this is known as monetary policy.
Amongst various instruments available with central bank are interest rates, reserve requirements, interventions in the credit market and so on. These instruments are used to influence the demand for liquidity and, thus, M could be controlled.
In fact, Federal Reserve uses several policy instruments to reduce the adverse effects of fluctuations in income. An important instrument used to influence money supply is interest rate, which is signaled by Federal Rate. In the transaction motive for money, there is an inverse relationship between opportunity cost of money that is interest rate and demand for liquidity. As such, if Federal targets inflation, it would have to increase interest rate so that liquidity is removed from the system. Any increase in interest rate would induce people to part away liquidity and thereby bring about stability in the price level.
Second mechanism operates through credit market. It is assumed that borrowing from credit market finances entire investment spending. Credit expansion is an important mechanism for money creation; thus, if credit expansion is controlled, money supply can be controlled and so price could be controlled. Federal could use interest rate directly to influence credit creation.
A necessary and sufficient condition for investment to take place is that marginal efficiency of capital, measured by rate of return, should be at least or equal to cost of capital, given by interest rate. With every increase in Federal rate, the Federal Reserve indirectly increases cost of capital such that the basic condition for investment spending gets violated. This reduces incentives for private investment resulting is lack demand for credit. Similarly, if the economy has slowed down, they could reduce
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1): 1. Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates. 2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.
Nourishment is necessary to sustain a man’s existence. This, because of its inevitability and perhaps for the same reason, became most susceptible to abuse. The irony of our consumption is that we would more than prefer to purchase organic food at possibly a more expensive price to ensure the health of our family when in fact organic is by its essence natural.
In simple terms, the Federal Reserve came into being by enactment of the Congress. Consequently, the Congress has the obligation of overseeing the monetary policy and the Federal Reserve. This paper analyzes the importance of the Federal Reserve and strategy in stabilizing the economy of the country.
The money supply which consists of the circulating currency and bank deposits needs to be controlled in order to balance the lending and borrowing capacity of the financial institutions. FED uses three tools to control the money supply: changing the reserve requirements, open market operations, and changing the discount rate (Tucker, 2010, pg.408).
The FED also keeps business running in the nation through supply of currency, coins, and services payments such as check clearing and electronic funds transfer (Solow & Taylor, 2008).The paper will look at the U.S Federal Reserves monetary policy in detail addressing various issues.
The structure, roles and the responsibilities of the Federal Reserve has undergone rapid changes over the years which have been mainly stimulated by the events like the Great Depression, Global Financial Crisis, etc. The structure of the Federal Reserve System is composed of a governing board, the open market committee, regional Federal Reserve banks, privately owned banks in US and the advisory councils.
Monetary policy is the actions taken by the central bank to influence the availability and cost of money and credit to assist in promoting national economic goals. The Fed's monetary policy decisions affect the flow of money and credit in the economy.
The Federal Reserve System includes the Federal Open Market Committee, the Board of Governors, and the Federal Reserve Bank Presidents.
This is normally led by activists of political parties and working class workers’ organizations.
The revolutionaries used strategies and concepts that were well thought, planned and executed. In the build up to the 1949 revolution, the
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