Monetary Policy And Its Effects On Macroeconomic Factors
Monetary policy is one of the tools utilized by a national government to influence its economy that is usually administered by a government appointed central bank (Monetary Policy, 2007). The central bank for the United States is the Federal Reserve Bank. This paper will discuss monetary policy and how it effect the macroeconomic factors such as the gross domestic product, unemployment, inflation and interest rates. Also included in this discussion will be how money is created and what combination of monetary policy assisted in achieving a balance between economic growth, low inflation, and a reasonable rate of unemployment.
Monetary Policy
The goals of monetary policy are to "achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages" (Monetary Policy, 2007). Monetary policy comes under the realm of a nation's central bank, which is the Federal Reserve Bank (commonly referred to as the Fed) here in the United States, that one of the largest in the world.
The Fed consist of 12 privately controlled, separate central banks located throughout the United States that serves a designated district for which it is located. The independence of the banks is limited, however, power is centralized in a board of seven governors who are appointed by the president and confirmed by the Senate (Nadler, 2007). The system was established in this manner to disseminate the power of the central bank.
The Fed determines monetary policy along with controlling the issuance of paper currency and coins, regulates the banks that are members of the Federal Reserve System, determine whether member banks may establish branches or buy other banks, and regulate the operations of bank-holding companies (Nadler, 2007).
The Fed has three instruments of monetary control that are used to regulate the reserves of commercial banks: open-market operations, the reserve ratio, and the...
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