Fiscal Policy And Monetary Policy

Fiscal Policy And Monetary Policy
Nowadays, economic growth and stability is the goal that governments aim to achieve. There are
two main ways to achieve this purpose: fiscal policy and monetary policy. Monetary policy is a kind
of macroeconomic policy lead by the central bank. Expansionary monetary policies can help boost
the economy but it will cause inflation. There are two approaches to control money supply; there are
price and quantity. Price represents interest rates and quantity means amount of money quantity.
After financial crisis, U.S. interest rates already reached a low point. As a result, the only effective
way to boost the economy was by increasing money supply. In other words, the U.S. government
would printed money and bought bonds in the open market. New funds would entered the open
market to boost economy, that is called "Quantitative Easing" monetary. Concern the U.S. dollar
was the most powerful currency in the world, U.S. monetary policy could affect the whole world.
There were three rounds of Quantitative Easing monetary in the U.S. In QE1, the Federal Reserve
(Fed) purchased 1.25 trillion dollars of residential mortgage–backed securities, $ 300 billion long–
term Treasury bonds and $ 175 billion agency debt purchases between December 2008 and March
2010.The U.S government injected capital to major banks in order to reduce the impact of the
financial crisis. The Federal Reserve purchased $600 billion of longer–term Treasury securities in
QE2 during the period of November 2010 to June
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Rbi Monetary Policy
Introduction The central bank of the country is the Reserve Bank of India (RBI). It was established
in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton
Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was
entirely owned by private shareholders in the begining. The Government held shares of nominal
value of Rs. 2,20,000. Reserve Bank of India was nationalised in the year 1949. The general
superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members,
the Governor and four Deputy Governors, one Government official from the Ministry of Finance,
ten nominated Directors by the Government to give representation to ... Show more content on
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The Reserve Bank Of India' Bulletin is a monthly publication. It not only provides information, but
also results of important studies and investigations conducted by reserve bank are given. 'The Report
on currency and finance' is an annual publication. It provides review of various developments of
economic and financial importance. 2. Regulatory And Supervisory Functions:– The RBI has wide
powers of supervision and control over commercial and co–operative banks, relating to licensing,
establishment, branch expansion, liquidity of Assets, management and methods of working,
amalgamation, re–construction and liquidation. The supervisory functions of RBI have helped a
great in improving the standard of banking in India to develop on sound lines and to improve the
methods of their operation. 4. Clearing House Functions:– The RBI acts as a clearing house for all
member banks. This avoids unnecessary transfer of funds between the various banks. 3.
Development And Promotional Functions :– The RBI has helped in setting up Industrial Finance
Corporations of India (IFCI), State Financial Corporations (SFCs), Deposit Insurance Corporation,
Agricultural Refinance and Development Corporation (ARDC), units Trust of India (UTI) etc. these
institutions were set up to mobilize savings, promote saving habits and to provide industrial and
agricultural finance. RBI has a special Agricultural Credit Department (ACD) which studies the

What Is Monetary Policy? Explain the General Objectives of...
What is Monetary policy? Explain the general objectives of monetary policy.
103 days ago by Galaxy Edu Planet 0
Q. What is Monetary policy? Explain the general objectives of monetary policy. Answer: Monetary
Policy
Monetary policy is a part overall economic policy of a country. It is employed by the government as
an effective tool to promote economic stability and achieve certain predetermined objectives.
Meaning and Definition:
Monetary Policy deals with the total money supply and its management in an economy. It is
essentially a programme of action undertaken by the monetary authorities generally the central bank
to control and regulate the supply of money with the public and the flow of credit with a view to
achieving economic ... Show more content on Helpwriting.net ...
On account of all these benefits, monetary authorities have to take concrete steps to check price
oscillations. Price stability is considered as one of the prerequisite condition for economic
development and it contributes positively to the attainment of a steady rate of growth in an
economy. This is because price stability will build up public morale and instill confidence in the
minds of people, boost up business activity, expand various kinds of economic activities and ensure
distributive justice in the country. Prof Basu rightly observes, "A monetary policy which can
maintain a reasonable degree of price stability and keep employment reasonably full, sets the stage
of economic development".
3. Exchange rate stability:
Maintenance of stable or fixed exchange rate was one of the major objects of monetary policy for a
long time under the gold standard. The stability of national output and internal price level was
considered secondary and subservient to the former. It was through free and automatic imports and
exports of gold that the country was able to remove the disequilibrium in the balance of payments
and ensure stability of exchange rates with other countries. The government followed the policy of
expanding currency and credit with the inflow of gold and contracting currency and credit with the
outflow of

Essay on Monetary Policy
Introduction
Monetary policy is among the many tools used by a national government to manipulate its financial
system. Monetary policy refers to the method used by the financial authority of any country to
control the supply and availability of money (Woelfel, 1994). It is often targeted at interest rates to
achieve lay down objectives directed towards economic growth and stability (Woelfel, 1994).
Monetary policy rests on the link between interest rates in an economy, that is, the relationship
between interest rates and the total money supply. It employs a variety of methods to control
outcomes like inflation, economic growth, currency exchange rates and unemployment.
Monetary policy can either be expansionary policy in which case ... Show more content on
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One of these approaches is quantitative easing (QE). Quantitative easing is a technique used by
central banks to boost money supply in an economy when interest rates are close to or at zero thus
cannot be reduced further (Woelfel, 1994). To increase the supply of money under such conditions,
the central bank may be forced to buy government assets/securities like government bonds,
mortgage–backed securities or government debt from banks thus increase their surplus revenue
hence raise or stabilize prices of such securities and consequently reduce interest rates in the long
term.
With this insight in mind, the remaining part of this essay seeks to critically examine the methods of
implementing monetary policy when interest rates are close to or at zero.
Monetary Policy Options at the Zero Bound
Interest rates have the lowest bound at zero mark. When this limit is reached, serious problems
occur in designing appropriate monetary policy approaches since interest rates can never be set
below this mark. Countries like Japan, United States and Switzerland have faced this challenge in
the recent past thus calling for alternative approaches to monetary policy when the nominal interest
rate is close or at zero.
Conventional monetary policy methods are always channeled towards lowering interest rates to
stabilize inflation and other outputs. This is however impossible in situations whereby the interest
rates are already close to or zero calling for

The Fed And Monetary Policy
1. The Fed and Monetary Policy
Monetary policy is the action taken by the Federal Reserve to expand or contract the money supply
and influence interest rates.
After checking the current news on monetary policy, describe the Fed's current policy – is it
expanding or contracting the money supply, and why? Do you think that this policy could increase
or reduce inflation?
The Fed is expanding the money supply. The Fed have data that shows a positive increase in the
labor market, house hold spending, housing sector. The Fed is trying to increase price stability,
strengthen the labor market, and expand economic activity within the nation. Their policy in place is
to reduce inflation.
2. Inflation – Winners and Losers
We often hear of inflation

Fiscal and Monetary Policies
Fiscal and Monetary Policies
Charles T. Sheridan
Student ID: 4290575
ECON 102
American Military University
Dr. John Theodore
Economies everywhere in the world have fluctuations, there Gross Domestic Product (GDP) is
either growing (economic boom) or it is not producing enough and falls into a recession. In a
recession, an economy's GDP suffers two consecutive quarters of negative growth. Personal
consumption, government spending and the amount a country imports and exports measure GDP
(Amadeo, nd) while Rittenberg and Tregarthen state that personal consumption (C), gross private
domestic investment (I), government purchases (G) and net exports (Xn) make up GDP (2009). The
most recent recession in the U. S. economy was in ... Show more content on Helpwriting.net ...
However, government purchases will lead to a greater impact on the aggregate demand curve than a
change in income taxes or transfers (Rittenberg and Tregarthen, 2009), The basic objectives of
monetary policy is to "help promote national economic goals of economic growth, full employment,
and price stability by influencing interest rates, the supply of money and credit" (Rittenberg and
Tregarthen, 2009). Monetary policy has a cause–effect chain that can help expand money supplies
by lowering interest rates to motivate consumers to borrow money (Rittenberg & Tregarthen,
2009). The extra money in the economy increases jobs. To help with monetary policy, the US
government created the Federal Reserve (or the Fed). The Fed can raise or lower interest rates to
help stimulate employment and help stabilize price (Rittenberg & Tregarthen, 2009). The Fed
has three policy tools; setting the reserve requirement for banks (usually 10%), operating the
discount window (where private banks can borrow money from the government to increase their
reserves or reduce their liabilities), and conduct open–market operations (where the Feds buy bonds
to create new reserves) (Rittenberg & Tregarthen, 2009). According to Rittenberg and
Tregarthen, these purchases of bonds could possibly increase the money supply (2009). When
private banks have extra reserves, they earn

Monetary policy of Kazakhstan
Paper Work
Economic Theory
Monetary Policy of Kazakhstan
Monetary policy is the process by which the monetary authority of a country controls the supply of
money, often targeting a rate of interest for the purpose of promoting economic growth and stability.
The official goals usually include relatively stable prices and low unemployment. Monetary theory
provides insight into how to craft optimal monetary policy. It is referred to as either being
expansionary or contractionary, where an expansionary policy increases the total supply of money in
the economy more rapidly than usual, and contractionary policy expands the money supply more
slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat ...
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The primary goal of Kazakhstan National Bank is to ensure the stability of prices in Kazakhstan.
Tasks:
development and implementation of the state's monetary policy; support of payment system
functioning; implementation of foreign exchange regulation and foreign exchange control;
assistance for maintenance of financial system's stability.
Functions:
realization of the state monetary policy in Kazakhstan; issuance of banknotes and coins on the
territory of Kazakhstan; the function of a bank of banks; the financial advisor and financial agent of
the Kazakhstan Government; organization and supervision of functioning of payment system;
realization of currency control and currency regulation in Kazakhstan; management of the gold
currency assets of the National Bank of Kazakhstan; control and supervision over the activities of
the financial organizations and regulation of their activities within the competence of the National
Bank of Kazakhstan; management of assets of the National fund of Kazakhstan.
Trends in Central Banking: The central bank influences interest rates by expanding or contracting
the monetary base, which consists of currency in circulation and banks' reserves on deposit at the
central bank. The primary way that the central bank can affect the monetary base is by open market
operations or sales and purchases of second hand government debt,

Monetary Policy Rules And Monetary Policies
I. Introduction
Monetary policy rules are a fundamental part of the central bank models and are often refined to
maximize economic welfare, specific to that country. Monetary policy rules are a methodical
response of monetary policy events in the economy. Essentially, it can be thought of as a numeric
equation, which determines the appropriate level for the central bank's policy instrument to be a
function of one or more economic variables that describe the state of the economy. It is imperative
that economies model the reaction of their monetary authorities to changes in their respective
economic conditions; this equation is essentially a "reaction function." A reaction function utilizes
its instruments to stabilize inflation and output ... Show more content on Helpwriting.net ...
The output gaps for both countries are related to their potential and real Gross Domestic Products
(GDP) in their respective currencies. Likewise for both countries, inflation is related to the
Consumer Price Index (CPI).
Figure 1 depicts a picture of very similar output gaps between the two countries, however the United
States falls at a quicker rate. Therefore, the slope of the U.S. is higher. Canada's economy from the
year 2000–2007 operates above its capacity to withstand the level of production due to excess
demand and begins to fall just after, similar to the United States whom have transitioned between
positive and negative output gaps since the beginning of the decade.
Figure 2 shows inflation rates above 1.5, however they take a drastic fall in 2008–2009, which will
correspond to the recession both economies were facing. Prices in both economies plummeted, the
U.S. falling almost 4% from 2008. Although never really constant, the inflation rates prior to the
recession were rather normal in both countries, however the instability could be a combination of a
reduction in the supply of money in the economy and a lack of regulation of the monetary policy
rule. Figure 1
Figure 2
III. United States: Federal Funds Rate vs. Taylor Rule Rate (2000–2014)
The Taylor Rule is a numerical formula that relates the Federal Reserve's or the Bank Of Canada's
target for the federal funds rate to the current state of the

Monetary Policy Essay
According to the simulation, there are three key economic tools used by the Federal Reserve to
control the monetary policy. 1. Spread between the Discount Rate and the Federal Funds Rate 2.
Required Reserve Ratio 3. Open Market Operations
These economic tools influence the money supply in the following ways:
1. Difference in Discount Rate and Federal Funds Rate:
Banks are able to borrow from the Fed if the discount rate charged by the Fed is lower than the
federal funds rate charged by other banks. As the discount rate is decreased, banks shift their source
of borrowing from other banks to the Fed. As they do so, the total amount of money in the system is
increased. If the spread is positive, banks will always borrow from other ... Show more content on
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2. Inflation Rate:
While increasing the money supply is a good sign for the GDP, it is not the same for inflation. With
the increase, the nominal value of money stays the same, but the increase in money continues to
chase the same quantity of goods and services thus the real value of money is decreased. The result
is prices go up.
3. Unemployment Rate:
The unemployment rate reacts to the GDP. When investment and spending increase, demand and
employment opportunities tend to go up due to labor requirements for production of goods and
services. This increase causes a decrease in the unemployment figures. When money is reduced in
the system, causing a decrease in the GDP, the employment opportunities and demand for workforce
will fall increasing the unemployment rates.
Monetary Policy
U.S. monetary policy affects all kinds of economic decisions people make in this country as well as
others. Whether it is to get a new loan for a brand new car, that new home for upstart family or to
begin a new entrepreneur company, loans are a part of everyday life. Loans are not the only items
driving the economic decisions, take for instance the money one puts in the bank or in bonds, some
may even look to invest in the stock market. Because the U.S. is the largest economy in the world,
its monetary policy can significantly affect financial endeavors in other countries.
The purpose of

Monetary Policy Paper
{draw:rect} {draw:g} {draw:frame} Monetary Policy Paper Objective I choose to research and
write on the topic of monetary policy. My two main sources of information were
www.federalreserve.gov and www.frsbf.org. From my research I would define monetary policy as
the macroeconomic act of keeping the country financially stable. According to www.frsbf.org "The
object of monetary policy is to influence the performance of the economy as reflected in such
factors as inflation, economic output, and employment. It works by affecting demand across the
economy–that is, people's and firms' willingness to spend on goods and services". The information
that I located suggested that the main issues that monetary policy deals with are inflation ... Show
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Others say that the apex bank would maintain status quo on both the short–term rates as well as cash
reserve ratio (CRR) and adopt a wait and watch stance. However, with the US Federal Reserve
slashing its rates by 0.75% last week, some bankers feel that the RBI might consider a 0.25–0.50%
cut in interest rates and a 0.25% reduction in the CRR margin.Following the Fed rate cut, the
possibility of huge capital inflows into India has increased and the RBI might take steps to narrow
the interest rate differential between the two countries, Indian Banks' Association's chief executive H
N Sinor said. "The RBI may send out a signal by reducing either the reverse repo or the repo rate by
0.25–0.50% to moderate capital flows," Sinor said. The repo and reverse repo rates currently stand
at 7.75 % and 6% respectively. While a hike in key rates might temper capital inflows, a cut in CRR
would release some capital, which could be used by banks for increasing credit offtake and thereby
spurring growth, which has slowed down in some sectors including manufacturing, textiles and
consumer durables. "High interest rates have hit growth in certain sectors. Whether the RBI does it
this month–end or a little later remains to be seen," private sector Yes Bank chief Rana Kapoor said.
Dena Bank chairman P L Gairola feels that one could expect a

Monetary Policy Rules And Monetary Policies
Monetary policy rules are a fundamental part of the central bank models and are often refined to
maximize economic welfare, specific to that country. Monetary policy rules are a methodical
response of monetary policy events in the economy. Essentially, it can be thought of as a numeric
equation, which determines the appropriate level for the central bank's policy instrument to be a
function of one or more economic variables that describe the state of the economy. It is imperative
that economies model the reaction of their monetary authorities to changes in their respective
economic conditions; this equation is essentially a "reaction function." A reaction function utilizes
its instruments to stabilize inflation and output fluctuations in response to demand or supply shocks.
In a macroeconomic environment, the policy rules a Central bank develops is essential and thus
numerous monetary policy rules have been discussed throughout economic literature.
Monetary policy rules in Canada differ from the United States, as the Canadian monetary policy has
an inflation–control target and the flexible exchange rate. On the other hand, the US rate is the
interest rate that a bank charges another for borrowing money overnight. The rates determined
through the monetary policy rules determine many factors of the economy and globally as well.
II. Canada vs. United Sates: Output Gap & Inflation Comparisons (2000–2014)
The data for these graphs were retrieved through the International

RBA Monetary Policy
The government may also use monetary policy in order to contain economic growth. Monetary
policy refers to changes in interest rates in order to influence aggregate demand and economic
activity. Monetary policy is conducted by the Reserve Bank of Australia, who use domestic market
operations in order to change interest rates. If the RBA takes a loose monetary policy stance the
RBA will purchase Commonwealth Government Securities in secondary bond markets. This
increases the cash in the markets, and therefore pushes the overnight cash rate down. Interest rates
will be lowered, which will result in higher consumer demand as the cost of interest on mortgages
and credit card repayments will decrease. On the other hand a tight monetary stance results ... Show
Microeconomic policies promote the efficient operation of markets as the most effective mechanism
for achieving efficient allocation and use of resources, raise productivity and increase aggregate
supply. Increased aggregate supply will result in decreased inflationary pressures and increased
international competitiveness as Australian producers are able to supply international markets with a
greater volume of goods at lower prices. Greater export earnings will consequently improve
Australia's terms of trade, and will decrease the current account deficit. Microeconomic reforms that
promote increased competition in both domestic and international markets will also encourage
greater innovation and cheaper product, which will benefit consumers. Increases in productivity and
aggregate supply will also result in improvements in labour productivity. Higher productivity and
greater export earnings will result in wage increases for Australian labour, and subsequently living
standards will improve. As a result of higher wages, aggregate demand will increase thus creating
further opportunities for increases in

The Monetary System Of Nepal
1.1.3 Monetary Perspective The monetary system of Nepal shows the dualistic nature of monetary
economy. The urban is merged in organized industries, trade and service sector. The rural economy,
where the majority of people at subsistence level without any surplus of exchange, does not show
any improvement in the process of monetization. When we look historically in the monetary system
of Nepalese economy, it seems the two commercial banks viz. Nepal Bank Ltd. (1936) and the
Rastriya Banijya Bank (1965) played an important role in the Nepalese money market. Though
those two banks were different in origin, they are now operating under the same rule and regulation
of Commercial Bank Act 1974(Sharma, 1987:53). The Nepal Rastra Bank as a central bank of
country took entirely a decade since its establishment in 1956, to consolidate its power as banker's
bank and to regulate operations of banking. By the same token, the Nepal Industrial Development
Corporation (NIDC) was set up in 1959 with the objective of providing financial outgoing of new
industries in country. The Agricultural Development Bank (ADB) was also established in 1968 with
a view of financing in agricultural sector. Gaudel (2000) has presented some propositions regarding
monetary perspective of Nepalese economy which are as follows:–
– The monetary structure of the Nepalese economy is dualistic in nature. It implies that the banking
and financial intermediaries have no significant influence on

Framework Of Monetary Policy
The Fed retains a number of monetary policy tools that can be placed against crisis. The first set of
tools was Provision of short–term liquidity to sound financial institutions and these activities
incorporate making new offices for selling credit and making essential securities dealers, and
additionally banks, qualified to obtain at the Fed's markdown window (Federal Reserve, 2009).
The second set of tools which involve the provision of liquidity directly to borrowers and investors
in key credit markets. In this the government has introduced advantages to buy profoundly evaluated
business paper at a term of three months and to give reinforcement liquidity for money market
mutual funds (Federal Reserve, 2009).Also, the Federal Reserve and ... Show more content on
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In addition, the usage of Federal Reserve credit is resolved in substantial part by borrower needs and
will tend to increment when economic situations intensify and decrease when economic situations
progress. Setting an objective for the size of the Federal Reserve's balance report, as in a QE
administration, could in this manner have the unreasonable impact of compelling the Fed to fix the
terms and accessibility of its loaning now and again when economic situations were intensifying,
and vice verse (Financial times, 2011).
The European Central Board(ECB) has acted very quickly and in sufficient manner since the start of
Financial market disturbance. The ECB minimized the key policy rate by 325 basic points, interest
rate on fundamental renegotiating operations now remains at 1.0%, its most reduced level since the
launch of euro. ECB substantive monetary policy facilitating is as of now being felt in the genuine
economy. Furthermore, bringing down the policy interest rate quickly and sharply, ECB have turned
to exceptionally non–standard

Discretionary Monetary Policy Is The Monetary Authorities...
Discretionary monetary policy is the monetary authorities based on the current economic situations
and relevant macroeconomic objectives to achieve economic targets through appropriate tools (such
as open market operations and the discount rate etc.) to operate expansion or tightening monetary
policies(Barro, 1990). This essay will first introduce the optimal discretionary monetary policy and
then investigate the role of supply shock in that policy. Afterwards, analyze the implication of the
supply shock in discretionary model and how it helps the European Central Bank's (ECB's) responds
to 2007–2008 financial crisis. And finally conclude the relationship between the implication of
discretionary theory with shock and the real responds to ... Show more content on Helpwriting.net ...
That is the output is lower than the natural rate of output, so CB plays a role to push up output level
to the efficient level. Another explanation is that the candidates of political election make pressure to
expand the economy in order to improve the possibility of success. This loss function includes the
variance of output and thus CB has the role of stabilizing the economy. The aggregate supply is
simply defined by Lucas island model in this essay: . is the private agency expectation for inflation,
is the aggregate supply shock with mean 0 and constant variance . Then rearrange supply function,
we obtain the short–run Phillips Curve (PC) . This illustrates in Figure 1. The order of discretionary
policy model is significant. First, the private agency determines nominal wage through their
inflation expectation. Then the policy makers determine the inflationafter observing the supply
shock. It means that this policy makes reaction for that supply shock. This additional information
advantage makes the CB plays an important rule of stabilization. It also explains why it is more
frequent to change monetary policy than change nominal wage and price. This means that the CB
makes reaction to supply shock before the private agency's modification for nominal contract. If
there is no supply shock (), solve the Lagrangian to

Effect of Monetary Policy in Nigeria
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION 1.1 Background of the study 1.2 Statement of the problem 1.3
Objectives of the study 1.4 Research Question 1.5 Research Hypothesis 1.6 Significance of the
study 1.7 Scope of the study 1.8 Organization of the study 1.9 Definition of terms.
CHAPTER TWO: LITERATURE REVIEW 2.1 Theoretical framework 2.2 Concept of monetary
policy 2.3 Instrument of monetary policy 2.4 Monetary policy and inflation control 2.5 Problems
associated with inflation control
CHAPTER THREE: RESEARCH METHODOLOGY 3.1 Research Design 3.2 Sources of data
collection 3.3 Method of Data collection 3.4 Technique of Data ... Show more content on
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The direct monetary control measures used after the deregulation era were adopted, yet the
effectiveness of these various control approaches has been undermined by some inherent problems.
1.2 STATEMENT OF THE PROBLEM
Relative price stability is one of the main goals of monetary policy. Stable price level should be able
to stimulate economic growth and development. It is in recognition of this that government at all
times design appropriate measures as well as monetary institution with authority to formulate and
implement policies aim at maintaining stable price level so as to achieve set macroeconomic
objectives. The central bank of Nigeria is the apex monetary authority that formulates and
implements monetary policy in Nigeria aim at achieving stable price. Given the number of years the
central bank had been in existence and of numerous monetary policy measures, one will expect that
domestic price could have been relatively stable. However, inflation has continued recently to be a
leading topic in Nigeria families and press as its effect penetrate more deeply into the nations
despite monetary policy measure by the relevant monetary authorities hence the need of this study
of determine the effect of monetary policy on the control of inflation in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The basic objectives of this study is to

Monetary Quiz
14–1. The use of money and credit controls to achieve macroeconomic goals is: Fiscal policy. →
Monetary policy. Supply–side policy. Eclectic policy. | 14–2. Which of the following is responsible
for buying and selling of government securities to influence reserves in the banking system? Twelve
Federal Reserve banks The Executive Branch of government → The Federal Open Market
Committee The Board of Governors of the Federal Reserve | 14–3. Which of the following
represents the money multiplier? Required reserve ratio × total deposits Total reserves – required
reserves (Total reserves – required reserves) × multiplier → 1 ÷ (required reserve ratio) | 14–4.
Suppose the banks in the Federal Reserve System have $200 billion in ... Show more content on
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| 14–7. When a bank is deficient in reserves, it can go to the federal funds market to borrow what it
needs from another bank. | 14–10. The open market operations are conducted daily and do not have
as large undesirable effects as altering the reserve requirement; as such, they are the Fed's favored
tool. | 14–9. When a bank borrows money from the Fed, the bank's balance sheet has an equal
increase in liabilities which includes loans from the Fed and assets which includes the additional
reserves. | 14–11. When the Fed wishes to increase the reserves of the member banks, it: → Buys
securities. Raises the reserve requirement. Raises the discount rate. Sells securities. | 14–12. Tony
buys a bond in the amount of $500 with a promised interest rate of 15 percent. If the market interest
rate decreases to 5 percent, Tony can sell his bond for up to: $500. $250. → $1,500. $1,250. | 14–13.
The Fed can decrease the federal funds rate by: Selling bonds. → Buying bonds which causes
market interest rates to fall. Simply announcing a lower rate since the Fed has direct control of this
interest rate. Changing the money multiplier. | 14–14. If the Fed wishes to increase the money
supply it could: → Lower the discount rate. Raise the minimum reserve ratio. Sell securities on the
open market. Issue more bonds. | 14–15. In order to increase the money supply the Fed can: Raise

Growth Of Monetary And India
GROWTH OF MONETARY AGGREGATES IN INDIA IN POST REFORM–PERIOD (1990–91 to
2014–15)
Nandini Sud
ABSTRACT
Money supply plays a pivotal role in an economy in terms of affecting its prices, output, exchange
rate, etc. In a developing economy like India where development efforts are majorly made through
government expenditure, money supply in the economy tends to increase rapidly, which may cause
over expansion of money supply. Thus, there arises a need for comprehensive study of monetary
aggregates and their components to regulate money supply which provides a base for conducting
monetary policy in the economy. The present study is an attempt to analyze the growth in various
monetary aggregates and their components for India in the post–reform period of 1990–91 to 2014–
15.
INTRODUCTION Money supply is one of the most important macroeconomic variable in an
economy and plays a pivotal role in its economic growth and development. Along with being an
important determinant of price stability, money supply also asserts substantial influence on the
economy's output, employment, exchange rate, foreign trade, etc. In a developing economy like
India, most of the development activities are undertaken by incurring government expenditure (such
as enhancing infrastructure, providing quality education and healthcare, programs for agriculture
and MSME's, etc.) which causes a rapid increase in money supply and may also lead to its over
expansion. However, if the dual objective of economic

Simulationary Monetary Policy
Asymmetry in the credit markets result in a wedge between the costs of external funds (i.e. from
banks and other lenders) to the public, and the cost of internal funds. Thus, internal funds, bank
loans and other sources of financing are imperfect substitutes for firms. These imperfections related
to credit market frictions causes monetary policy changes to affect both the bank–lending channel
and the balance sheet channel citep{Gertler1995}.
The bank–lending channel underpins the role of banks as financial intermediaries, as their business
structure is designed to serve certain type of borrowers, being small to mid–sized enterprises and
households, where the problem of asymmetric information emerge citep{stiglitz81}. According to
the theory, ... Show more content on Helpwriting.net ...
The risk–taking channel is thought to operate via three main mechanisms. First, the search–for–yield
mechanism, with low (nominal) interest rates increasing incentives for banks to take on more risk
citep{Rajan2005}. The second mechanism relates to the impact of low interest rates on real
valuations, incomes, and cash flows. Low rates boost asset and collateral values while tending to
reduce price volatility, which in turn downsizes the banks estimated probability of default, implying
the belief that the increase in asset values are sustainable, encouraging both borrowers and banks to
accept higher risk positions citep{Borio2012}. Third, monetary policy also affects risk–taking
through the reaction function of the central bank to negative shocks. The commitment of a central
bank for lower (future) interest rates in the case of a threatening shock reduces the probability of
large downside risks, thereby encouraging banks to assume greater risk.footnote{This effect, also
known as the Greenspan or Bernanke put, operates through the textit{expected} lower interest rates
rather than textit{current} low rates themselves. Its magnitude, however, depends on the current
level of the policy rate. Anticipated interest rate reductions tend to correspond to a higher risk
position when there is

Notes On Monetary And Monetary Policy Essay
FROM MONETARY TARGETING TO INFLATION TARGETING BY DAVID EYO USANG
138581
List of Abbreviations
CB Central Bank
ECB European central bank
FEDS The federal reserves
MP Monetary Policy
IT Inflation Targeting
MT Monetary Targeting
M1 Narrow money
M2 Intermediate money
M3 Monetary aggregates 3
MB Monetary Base
MS Money Supply
INTRODUCTION
For decades, high inflation has always been a potential threat to the macroeconomic stability and
long–term economic growth in the world. Central banks have been modelling strategies to tackle the
general price instability in an economy. Different models have been adopted to predict general price
levels, maintain a favorable inflation rate and promote economic growth. This can be achieved by
ensuring that the economic variables are properly regulated by committed and reliable financial
institutions in a state. Getting the model and monetary policy right is crucial for the health of an
economy. Overly expansionary MP leads to high inflation, which

Monetary Policy
Monetary policy has some basic goals: to promote "maximum" sustainable output and
employment and to promote "stable" prices. The term "monetary policy"
refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the
availability and cost of money and credit to help promote national economic goals. The Federal
Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.
The Fed can not control inflation or influence output and employment directly; instead, it affects
them indirectly, mainly by raising or lowering a short–term interest rate called the "federal
funds" rate. The Federal Reserve has certain tools at its ... Show more content on
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Using these tools, the Federal Reserve influences the demand for, and supply of, balances that
depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate.
The federal funds rate is the interest rate at which depository institutions lend balances at the Federal
Reserve to other depository institutions overnight. The point of implementing policy through raising
or lowering interest rates is to affect people's and firms' demand for goods and services. Changes in
the federal funds rate trigger a chain of events that affect other short–term interest rates, foreign
exchange rates, long–term interest rates, the amount of money and credit, and, ultimately, a range of
economic variables. This shows how policy actions affect real interest rates, which in turn affect
demand and ultimately output, employment, and inflation.
Monetary policy can be quickly altered and can affect money supply and investments very fast thus
making speed and flexibility one of its strength. Members of the Feds board are appointed a 14 year
term. This isolates them from lobbying so therefore no political pressure to contend with. The tight
monetary policy helped the economy succeed from 1980 thru to 1990 by bringing down the inflation
rate.
Monetary policy is not all strengths there are weaknesses also associated

Monetary Policy Paper
Introduction
Fiscal and monetary policies focus on quickly returning the economy to sustainable, healthy growth.
Any type of fiscal relief package will boost consumer and business spending and can augment the
nation's long–term growth potential. Expansionary monetary policy can stimulate growth and
provide insurance against the possibility of deflation. This paper will present information on four
topics: (1) tools used by the Federal Reserve to control the money supply, (2) how these tools
influence the money supply and in turn affect macroeconomic factors? (3) how money is created?
(4) recommended monetary policy combinations that best achieve a balance between economic
growth, low inflation, and a reasonable ... Show more content on Helpwriting.net ...
Tools used by the Federal Reserve to control money supply?
On The Federal Reserve Web site"The major tool the Fed uses to affect the supply of reserves in the
banking system is open market operations—that is, the Fed buys and sells government securities on
the open market. These operations are conducted by the Federal Reserve Bank of New York. When
the Fed wants the funds rate to rise, it does the reverse, that is, it sells government securities. The
Fed receives payment in reserves from banks, which lowers the supply of reserves in the banking
system, and the funds rate rises" (http://www.frbsf.org/publications/economics/letter/2004/el2004–
01.html#subhead2).
Another tool the Fed uses to affect the supply of reserves The Fed can't control inflation or influence
output and employment directly; instead, it affects them indirectly, mainly by raising or lowering a
short–term interest rate called the "federal funds" rate. Most often, it does this through open market
operations in the market for bank reserves, known as the federal funds market
(http://www.frbsf.org/publications/economics/letter/2004/el2004–01.html#subhead2).
The Fed can also use discount interest rate decreases as way of controlling money: The Fed can
lower the discount rate and lower the costs for banks holding low excess reserves which will lower
the excess reserve rate. If the Fed lowers the

Monetary Policy Monetary Policy The Economy is the backbone to society. There are many factors
that operate in, and govern our society's economical structure. Factors such as scarcity and choice,
opportunity cost, marginal analysis, microeconomics, macroeconomics, factors of production,
production possibilities, law of increasing opportunity cost, economic systems, circular flow model,
money, and economic costs and profits all contribute to what is known as the economy. These
properties as well as a few others, work together to influence the economy. Microeconomics and
Macroeconomics are two major components. Both of these are broken down into several different
components that dictate societal norms and views. "Microeconomics ... Show more content on
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Usually this goal is "macroeconomic stability" – low unemployment, low inflation, economic
growth, and a balance of external payments. Monetary policy is usually administered by a
Government appointed "Central Bank", the Bank of Canada and the Federal Reserve Bank in the
United States." (Federal Reserve Bank of San Francisco, 2007). Monetary policy effects the GDP
inflation. "Between 1996 and 2000, real GDP in the United States expanded briskly and the price
level rose only slowly. The economy experienced neither significant unemployment nor inflation.
Some observes felt that the United States had entered a "new ear" in which business cycle was dead.
But that wishful thinking came to an end in March 2001, when the economy entered its ninth
recession since 1950. Since 1970, real GDP has declined in the United States in five periods: 1973–
1975, 1980, 1981–1982, 1990–1991 and 2001." (McConnell & Brue, 2004). Unemployment Rates
The unemployment rate is also affected by monetary policy. "Unemployment that is above the
natural rate involves great economic and social costs." (McConnell & Brue, 2004). GDP GAP and
OKun's Law. McConnell and Brue define this as "when the economy fails to create enough jobs for
all who are able and willing to work, potential production of goods and services

Fiscal and Monetary Policy
It is the role of the federal government therefore to keep inflation low as well as keeping
unemployment rate down. Philips curve gives the probability of having both a low unemployment
and inflation hence providing the stakeholders in the sector in the short run a tradeoff between
unemployment and inflation (Mark & Asmaa, 2012). Unemployment can be kept under control by
the government while at the same time allowing inflation OR to keep controlling prices and not
controlling unemployment. This compromise between the two is shown as a contra–relation between
inflation and unemployment. In the long run, the government can only afford to play around with
inflation while having zero control over unemployment. At this natural rate of unemployment the
curve will be vertical.
According to what we are given, the rate of inflation is at an acceptable level of 2 % while
unemployment rate is exceptionally high. The only way to counter this is by reducing the tax rates
and increasing the government expenditure on both services and goods which is an expansionary
policy. The reason for this policy is to first raise the budget deficit. For consumption and spending
not to drop the fed can choose to increase the money supply to keep it high.
The common tools for expansionary monetary policy are the open market purchase of securities and
lowering of the FED landing rate. Because of increased availability of money the aggregate supply
will not keep up with rise in demand hence leading to

Monetary Policy
Monetary Policy at the Local and Federal Level & Impact in a Recession
Monetary policy, in the short run, has an impact toward the demand for goods and services. That is,
monetary policy has a distinct influence over inflation and other economic factors, not only at the
federal level, but at the state and citywide levels. Monetary policy will influence the financial
conditions facing firms and households in the environment, even at the micro level. Thus,
employees who produce goods and services are impacted, as is the demand for those goods and
services. When monetary policy imposes changes, the financial conditions that affect the economic
activity in specific sectors are influenced as well. The federal government, through fiscal policies ...
Of course, this is felt throughout the entire economy, at the state and local levels, and in
macroeconomics at the federal level. Individuals are dramatically impacted when stocks rise or fall.
The focus is on when stocks fall and there is a crippling impact on the individuals and their financial
worth. During a recession, the stock market has likely fallen, where one may notice the impact
throughout the local environment as individuals struggle to compensate for their losses. Therefore,
one is likely to see monetary policy in order to make adjustments and fix what is out of alignment in
the economic

Monetary Policy of Pakistan
MONETARY POLICY
[A REVIEW]
[2009]
BBA–Morning–2007
Saira Yoususf...Roll # 18
Mehwish Khalil...Roll # 14
Salman Ahmed...Roll # 09
Farhan Ahmed...Roll # 23
Nasir Hanif...Roll # 49
Zaid Munir...Roll # 46
Presented to:
PROF. HASSAN KAMRAN
Presented by:
Saira Yousaf...roll no. 18 Mehwish Khalil...roll no.14 Salman Ahmed...roll no. 09
Farhan Ahmed...roll no. 23
Nasir Hanif...roll no.49
Zaid Munir...roll no.46
ACKNOWLEDGEMENTS
The most important acknowledge is to our Lord Most Merciful Most Wise by Whose mercy we
were able to begin this project, His Mercy is such that unworthy slaves like ourselves are given the
ability to work hard and to be grateful towards all He has given us.
Allah states in the Quran:
"Then remember Me; I ... Show more content on Helpwriting.net ...
1. The Act stipulates that the Central Board of Directors of the State Bank of Pakistan
(SBP) shall 'secure monetary stability and the soundness of the financial system'.
2. However, the Act currently has twin objectives: price stability and growth. It does not define
'monetary stability' with precision, although Sections9 (a) and (b) do set out monetary policy

formulation and objectives. These ambiguities have allowed the government to adopt different
monetary policy frameworks at different times. To improve transparency, the IMF has recommended
to the Pakistani authorities that the SBP Act be amended to define the term more clearly and to
establish a hierarchy of multiple objectives of monetary policy.
3. The SBP is currently working to amend the Act to reflect the bank's role in the foreign exchange
market, as well as to clarify monetary policy.
When monetary policy is made?
In February 1994, the SBP was granted full autonomy to regulate and supervise monetary and credit
mechanisms. Following 2006 a separate independent body of monetary policy and research
department was created.
The process of monetary policy formulation usually begins at the start of the fiscal year when SBP
sets a target of M2 growth in line with government's targets of inflation and growth (usually in the
month of May) and an estimation of money demand in the economy.
The basic idea:
The objectives

What Is Monetary Policy?
What is Monetary Policy? Monetary policy is a wing of the economic policy that shows availability
of money in the economy. Monetary policy can be defined in terms of quantity of money or in form
of interest rates. This brings us to the question of what is money? Money represents purchasing
power with which an individual can buy any commodity. This implies that there is continuous
demand and supply of money in an economy. As learnt in class, national income and interest rates
are the two major determinants of aggregate demand for money. On the other hand there are two
aspects of money supply. They are broad money, which includes currency and all deposits and
narrow money, which includes currency and demand deposits.
Keynesian macroeconomics was majorly responsible for introducing the idea of creating demand in
an economy using monetary and fiscal policy through government intervention. On the other hand
economist Milton Friedman believed in market forces more than government intervention. He
thought that monetary policy couldn't control real variables like unemployment and GDP in the long
run. In the recent times central banks play a very important role in controlling the monetary policy.
From what I understand there are two types of central banks: (1) Banks like European Central bank
(ECB), which focus primarily on price stability and (2) Banks like Reserve Bank of India (RBI),
which focus on price stability, employment and output. I have divided this paper into various

Governments can use both fiscal and monetary policies to move the economy from a recessionary or
expansionary gap. Fiscal policies include increased or decreased government spending, increased or
decreased taxation; on the other hand monetary policies include increased or decreased money
supply, changes in interest rate, etc.
One of the tools of fiscal policy is government spending, the initial equilibrium is represented by the
point E. With increased government spending, the IS curve shifts to the right and new equilibrium is
reached at point E', with increased level of output and higher interest rate.
Monetary policy can help the economy back to the long run equilibrium. Let the initial equilibrium
... Show more content on Helpwriting.net ...
However, in the long run this trade off might not exist as In the long run, expected inflation adjusts
to changes in actual inflation, and the short–run Phillips curve shifts. As a result, the long–run
Phillips curve is vertical at the natural rate of

Expansionary Monetary Policy
The federal reserve should adopt expansionary monetary policy to stimulate the economy to
promote growth and development. Currently our nation is in a position where there is no compelling
reason to raise interest rates to combat inflation, therefor for the short term I believe we need to push
for continuing to decrease unemployment and aim for wage growth. The economic outlook is
unclear as foreign economic developments, in particular, pose risks to the United State's economy.
Expansionary monetary policy promotes a positive impact in a few different areas like local
investment and global economy. Monetary expansion entails increasing the amount of money that is
in our economy. This can be done by the Federal Reserve purchasing United States treasury bonds,
reducing the federal funds rate, and by ... Show more content on Helpwriting.net ...
It is evident that we take action now to aid our economic activity. We can do this by adopting an
expansionary monetary policy to stimulate our economy. The Federal Reserve has historically held
rates at a relatively low level, but it is important that we gradually increase rates as our economy
strengthens. Just last week our nation saw that, "the Federal Reserve sent a sharp, simple message to
financial markets (on Wednesday): Pay attention. The Fed is thinking seriously about raising its
benchmark interest rate at its next meeting, in June." Our economy is not quite ready to tighten
monetary policy. Expansion is relatively easy for the Fed to implement, and can be put in to action
quickly. The Fed is already holding rates at very low level, but it is tough to predict what other
global economies will do in the near future to stimulate their own respective economies. As a nation,
I believe that in this moment in time, we need to continue the expansionary trend until we are stable
enough to make great moves towards an ideal state for an economic

Mankiw's Monetary Policy
The action of the Federal Government poses a great impact on the status of the economy, the
livelihood of the people, and the way other nations will react. The reality of recession differs from
one environment to another, but the meaning of recession is the same. If policy makers and
government officials ignored the outcry from their nation over a recession, then the results would
lead to a depression.
First, the term recession is identified by N. Gregory Mankiw as "a period of declining real incomes
and rising unemployment." The actions of the Federal Reserve play a major role in struggling
against the negative effects of a recession. In doing that, the Fed may use various methods, the most
important of which are monetary policies. Monetary ... Show more content on Helpwriting.net ...
Furthermore, over the first two years of the crisis the policy expectations showed little change. The
Fed intervention was not, however, limited to the actions mentioned above. Therefore, special credit
programs, aimed at the restoration of the financial sphere, were implemented. According to N.
Gregory Mankiw, "price movements are how markets equilibrate supply and demand." Moreover,
banks had to undergo "stress tests" in order to prove that they had sufficient capital. It is identified
by Engen, Thomas, Laubach, and David that, "these initiatives are believed to have improved the
people's attitude towards banking system and broadened the flow of credit, which helped to foster
economic

Monetary Policy of Bangladesh
Monetary Police
Monetary policy is the term used by economists to describe ways of managing the supply of money
in an economy. Monetary Policy is the management of money supply and interest rates by central
bank to influence prices and employment for achieving the objectives of general economic policy.
Monetary policy works through expansion or contraction of investment and consumption
expenditure.
According to Paul Einzig
"Monetary policy includes all monetary decisions and measures irrespective of whether their aims
are monetary and non–monetary, and all non–monetary decisions and measures that aim it affecting
the monetary system."
According to Harry G. Johnson
"Monetary policy employing the central bank's control of supply ... Show more content on
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For developing economies like Bangladesh with significant underemployment/under exploitation of
production factors, stimulating higher growth is imperative for rapid reduction and eventual
elimination of endemic poverty, and is therefore an overriding priority. The stimulus provided by
monetary policies in accommodating the growth aspirations must not however over step towards
macroeconomic imbalance destabilizing and jeopardizing future growth; and the pursuit of
monetary policies comprise the continual balancing act of supporting the highest sustainable output
growth while adjusting smoothly to internal and external shocks that the economy encounter from
time to time.
The primary objective of the Monetary Policy of Bangladesh is to outline the formulation and
implementation of monetary policy of the Bangladesh Bank (BB), and to convey its assessment of
the recent and the expected monetary and inflation developments to the stakeholders and the public
at large.
The Bangladesh Bank Order of 1972 outlines the main objectives of monetary policy in Bangladesh,
which comprises– ■ To achieve the price stability.
■ To regulate currency and reserves.

■ To promote and maintain a high level of production, employment and real income, and economic
growth, since independence BB operated under a variety of pegged exchange rate systems amid
capital controls.
■ To manage the monetary and credit system.
■ To maintain the

The International Monetary Fund : An Evolving Role As A...
I.Introduction
For the past 15 years, China has been in the limelight as one of the world's fastest growing economy.
The International Monetary Fund (2014) reported China's average growth rate at an average of 10%
over the past 30 years. The market economy of China is the world's second largest economy by
nominal GDP based on the World Bank Data. In spite of this fast growing economy, the country, like
any developing country has experienced rough inflationary dynamics, and to target this, a mix of
Monetary Policies have been adopted. Reserve Ratio Requirement (RRR) has an evolving role as a
Monetary Policy tool to target these inflations. Ma, et al. (2011), presented that The People's Bank
of China (PBC) has actively changed its ... Show more content on Helpwriting.net ...
II. Inflation in the Recent Past
For the past decades, China has been in the limelight for inflationary episodes. Funke (2006) has
compared this phenomenon as a "roller coaster ride". But Girardin et.al. (2013) argues that there is a
remarkable inflation performance over the past decade, in spite of the absence of explicit inflation
targeting. This section shall focus on the inflations of the recent past of China. To contextualise this
section, how inflation became a normal trend of China's economy, the third, fourth and fifth phase of
the economic reform of China shall be presented according to the study of Funke (2006). During the
third (1988–1991) and fourth phase of economic reform (1992–1998), the reform process was
characterized by lack of effective macroeconomic policy intruments. The effect was a substantial
increase in inflation after price liberalisation. The fifth phase of economic reform (1998 to present)
can be characterized by broad–based enterprise, financial and social reforms. Inspite the sound mix
monetary policies of the People's Bank of China, the fifth phase of economic reform apparently still
have substantial inflation increase. Figure 1 shows inflation peaks for years 2004, 2007, 2008 and
2011 respectively.
Source: Author's computation based on World Bank Data
In 2004, China's annual rate of inflation hit a seven–year

International Monetary System
INTERNATIONAL MONETARY SYSTEM & MULTULATERAL DEVELOPMENT BANKS
Meaning International Monetary System refers to the system prevailing in world foreign exchange
markets through which international trade & capital movements are financed & exchanges rates are
determined. MNCs operate in a global market, buying/selling/producing in many different countries.
For example, GM sells cars in 150 countries, produces cars in 50 countries, so it has to deal with
hundreds of currencies. What are the mechanics of how currency and capital flows internationally?
International Monetary System – Institutional framework within which: 1. International payments
are made 2. Movements of capital are accommodated 3. Ex–rates are determined An international ...
The USA used the Eagle as their unit, and Germany introduced the new gold mark, while Canada
adopted a dual system based on both the American Gold Eagle and the British Gold Sovereign.
Australia and New Zealand adopted the British gold standard, as did the British West Indies, while
Newfoundland was the only British Empire territory to introduce its own gold coin as a standard.
Royal Mint branches were established in Sydney, New South Wales, Melbourne, Victoria, and Perth,
Western Australia for the purposes of minting gold sovereigns from Australia's rich gold deposits.
The Gold Exchange Standard Towards the end of the 19th century some of the remaining silver
standard countries began to peg their silver coin units to the gold standards of the United Kingdom
or the USA. In 1898,British India pegged the silver rupee to the pound sterling at a fixed rate of 1s
4d, while in 1906, the Straits Settlements adopted a gold exchange standard against the pound
sterling with the silver Straits dollar being fixed at 2s 4d. Meanwhile at the turn of the century, the
Philippines pegged the silver Peso/dollar to the US dollar at 50 cents. A similar pegging at 50 cents
occurred at around the same time with the silver Peso of Mexico and the silver Yen of Japan. When
Siam adopted a gold exchange standard in 1908, this left only China and Hong Kong on the silver
standard. The gold specie standard ended in the United Kingdom and the rest of the British Empire
at the outbreak of

Monetary Policy in the United States
Abstract
The role of government in the American economy goes past just being a regulator for specific
industries. There are two main tools for achieving these objectives: fiscal policy and monetary
policy. The Federal Reserve sets the nation's monetary policy to promote the objectives of maximum
employment, stable prices, and moderate long–term interest rates.
Monetary Policy in the United States
Monetary policy is the government or central bank process of managing money supply to achieve
specific goals (wikipedia.org). The United States monetary policy affects all kinds of economic and
financial decisions people make in this country. Whether to buy a car, or build a house, ... Show
Monetary policy objective is to influence the performance of the economy, in inflation, exchange
rate with other currencies and unemployment. Monetary authority has the ability to alter the interest
rate and the money supply, with affecting the demand of the economy. The Federal Reserve System
influences demand mainly by altering the (raising and lowering) short–term interest rates, to achieve
policy goals. These goals are listed in the 1977 amendment to the Federal Reserve Act. With
inflation increasingly devastating the economy, the central bank abruptly tightened monetary policy
beginning in 1979. This policy successfully slowed the growth of the money supply, but it helped
trigger sharp recessions in 1980 and 1981–1982. The inflation rate did come down, however, and by
the middle of the decade the Federal Reserve was again able to pursue a cautiously expansionary
policy. Interest rates, however, stayed relatively high, as the federal government had to borrow
heavily to finance its budget deficit. Rates slowly came down, too, as the deficit narrowed and
ultimately disappeared in the 1990s. The growing importance of monetary policy and the
diminishing role played by fiscal policy in economic stabilization efforts may reflect both political
and economic realities. Fighting inflation requires government to take unpopular actions

Monetary Policies And Monetary Policy
Monetary Policies (Introduction)
The objective of monetary policy is to reserve the worth of the money by keeping inflation low,
stable and predictable that lets Canadians be more confident about the spending and investment
choices. It reassures long–term investment in Canada's economy as well as contributes to continuous
job creation and better the production. It helps improve living standard. Canada's monetary policy
outline consists of two key components working together and reinforcing each other: the inflation–
control target and the flexible exchange rate. The inflation–control target directs the decisions of the
Bank regarding the proper setting of the policy interest rate that maintains a stable price
environment throughout the medium term.
Influencing Short–Term Interest Rates As to reach the inflation target, the banks have to make
changes in the policy rate by raising or lowering it. If inflation is beyond target, the banks will have
to increase the policy rate, this inspires institutions to increase interest rates on the loan and
mortgages. Discouraging borrowing and spending which enables upward pressure on price. If
inflation is under the goal, banks will lower the policy rate which would then encourage financial
institutions to lower interest rates on the loans and mortgages. This information shows how much
banks are concerned about inflation going higher or lower in terms of the goal. The key policy
interest rates are when banks expect to be used in

The Consequences Of Monetary Policy
Monetary policy has to do with the regulations that a government puts in place to control money in
circulation in the economy. An effective monetary policy will ensure that current and anticipated
events in the economy of a country are taken care of. The Federal Reserve (The Fed) is the central
bank of the United States, and it is responsible for the formulation and execution of these policies.
Banks made available huge amounts of money available in form of loans; banks were responsible
for creating large debts in form of loan interests. People who had borrowed were eventually unable
to pay. The creation of private credit and money led to a financial crisis, threatening to make banks
bankrupt. The same banks now became weary of lending ... Show more content on Helpwriting.net
...
Lenders felt the burden left by defaulters and their capital reduced.
Subprime borrowers are those borrowers who have low credit ratings and poor creditworthiness.
The subprime mortgage market meltdown began on 9 August 2007 and continued into 2008
(Cecchetti, 2008). It arose when banks created a lot of money in a short time and used the
opportunity to raise house prices and speculations on financial markets. Initial subprime mortgages
were affordable and many borrowers were attracted to them. However, they were adjustable after a
given duration. It is this adjustment that instigated many defaults in payments, mostly beginning in
2007 when higher payments were demanded. By 2009, banks were going bankrupt due to the high
number of defaulted mortgage payments.
Also, lenders came up with creative mortgage packages upon speculations of growing house prices.
With mortgage–backed securities (MBS), the process of securitization occurs whereby home
mortgages are grouped into categorized pools by the issuing banks. They are then sold as a single
security where the risks are spread out. These pooled assets–backed securities were attractive to both
lender and borrower because lender sold the loan and borrower accessed credit easily. Such
collateralized debt obligations (CDOs) were sold to other market investors to reduce the risk of
default. These investors were attracted by the higher returns, especially due to the lower interests.
During the liquidity period, as

Monetary Policy And Its Effects On The Economy
Introduction
Monetary policy has created financial stability and a lesser impact on the economy. In the aftermath
of the financial crisis, many financial institutions had little or no options just bear the burden of their
immature practices. These financial institutions brought major fatalities into the markets increasing
the scope and vulnerability of the financial sectors. According to the Federal Reserve, monetary
policy is an action of the central bank to achieve macroeconomic policy objectives such as price
stability, full employment, and stable economic growth.
Monetary policy has had a positive impact precisely the U.S economy. The unemployment rate has
reduced and the economy has shown signs of recovering. Moreover, many central bank governors
have different views and practices when it comes to monetary easing, at such, to prevent further
crisis spill–out into the economy. In the short, the Federal Reserve chairs manage through decisions
and tackle the crisis as prudent as possible. As we have seen with quantitative easing, purchasing
bonds, and making general influence of short–term market interest rate. An article by Market Watch,
lesson from the switch to Bernanke from Greenspan, when Ben Bernanke first went before senate
for his nomination to become Federal Reserve chairman in November 2005, the senators wanted to
know just one thing: would you he continue to do everything that Alan Greenspan had done. To our
surprise, Ben Bernanke continued the Greenspan

Monetary And Fiscal Policy : Monetary Policy
Monetary and fiscal policy
Introduction
Fiscal policy is defined as the power that the federal government poses that enables it to impose
taxes and also spend to achieve its goals in the economy. On the other hand, the monetary policy is
maintaining the programs that try to increase the nation's level of business through regulation the
supply of money and credit. Currently, one of the most important roles of the federal government is
to regulate and also ensure that there is stability in the economy. Through the use of both policies
options, there is a goal of increasing and decreasing the level of business activity in the country.
Governments in the world prefer to have a productive growing economy, but an economy can also
be too productive where the government may enact policies to slow down the economic growth.
This paper will discuss how both the monetary and fiscal policies are used in keeping the
unemployment and inflation low while ensuring that the GDP is increasing.
How fiscal and monetary policy can move the numbers to an acceptable level while keeping
inflation the same The government attempts to keep unemployment and inflation to a minimum; at
the same time, it attempts to obtain fast financial development with lasting symmetry in the balance
of payments. These aims are attracted concentration since they are not likely to be obtained in their
totality. Contrasted to an earlier performance, inflation of USA has been low and extraordinarily
even since the

Fiscal Policy And Monetary Policy

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