Monetary Policy

Monetary Policy

Introduction

Generally in the free market economy, it is expected that business cycle will adjust automatically without sudden changes. Despite this it fails to self adjust and invention of government authority is comprehensive to decrease the downward impact of business cycle. As the Employment Act of 1946 passes away, then congress officially handed duties of economic growth to the federal system. In the law it was mentioned that federal government is required to implement all practicable methods to attain the level of maximum employment, purchasing power and production (Mishkins, 2007). This legislation act did not particularly mention the method to the federal government should employ the methods to attain the level of full employment. And it was expected that congress will be formulating strategies. This legislation also developed the CEA within the President's Executive Office in regard to provide assistance to president in deciding the economic policy (Labonte & Makinen, 2006).

Therefore, federal government implies two major tools which are fiscal policy and monetary policy. These methods are used to attain macroeconomics objectives and attain stability in the economy.

Discussion

Generally in the free market economy, it is expected that business cycle will adjust automatically without sudden changes. Despite this it fails to self adjust and invention of government authority is comprehensive to decrease the downward impact of business cycle. As the Employment Act of 1946 passes away, then congress officially handed duties of economic growth to the federal system. In the law it was mentioned that federal government is required to implement all practicable methods to attain the level of maximum employment, purchasing power and production (Mishkins, 2007). This legislation act did not particularly mention the method to the federal government should employ the methods to attain the level of full employment. And it was expected that congress will be formulating strategies. This legislation also developed the CEA within the President's Executive Office in regard to provide assistance to president in deciding the economic policy (Labonte & Makinen, 2006).

Therefore, federal government implies two major tools which are fiscal policy and monetary policy. These methods are used to attain macroeconomics objectives and attain stability in the economy.

Monetary policy

Monetary policy refers to the procedures undertaken by the government or authority of controlling money to effectively control the money flow in the economy. It is to mention here that money does not only include cash, it also includes the credit available and the collateral that could be used as security or credit. Federal Reserve Board it the main player in controlling monetary flow in the economy. Generally, it is also known as the Fed, and Fed poses the authority to allow or reject for contraction or expansion of money flow in the circulation.

Fed is developed with the Federal Reserve Act of 1913 and it serves for United States as the central bank of the states. The role of the Federal Reserve System is to look and alleviate the industry of banking with regulations created and placed into practice by seven ...