I chose 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 economythat 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 and unemployment which usually affect each other.Monetary policy is the responsibility of the Federal Reserve System who put the main responsibility of monetary policy on their Federal Open Market Committee (FOMC). The FOMC meets 8 times a year and has 12 members who meet to discuss the state of the economy and what changes can be made to help the economy. The main tools used in monetary policy are the manipulation of short term interest rates which can greatly affect demand as well as manipulating the discount rate and reserve requirements.The discount rate is the interest rate the Federal Reserve Banks charge financial institutions for short-term loans of reserves. A change in the discount rate can decrease or encourage financial institutions lending and investment activities. A change is accomplished because lenders such as banks and credit unions are able to offer lower rates to consumers if the rate is low which usually increases consumer spending, and opposite effect occurs when the rate is high and lenders must increase their interest rates. However according to my research the discount rate is not changed very often.The reserve requirement is the percentage of deposits in demand deposit accounts that financial institutions must set aside and hold in reserve, in ot...
