Data Bases • Custom Term Papers • Free Term Papers • Free Research Papers • Free Essays • Free Book Reports • Plagiarism? Links • Top 100 Term Paper Sites • Top 25 Essay Sites • Top 50 Essay Sites • Search 97,000 Papers @ DirectEssays.com • Search 101,000 Papers @ ExampleEssays.com • Search 90,000 Papers @ MegaEssays.com Free Essays • Term Paper Sites • Chuck III's Free Essays • Free College Essays • TermPaperSites.com • My Term Papers • Get Free Essays • Essay World • Planet Papers	Search Lots of Essays Back to Subjects - Economics Monetary Polic Monetary Polic 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 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 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 other words it is a minimum amount of money which a bank must keep on hand and is unable to lend out. By increasing the reserve requirement the Fed can lower the amount of money in the open market, and by decreasing the reserve requirement the Fed can increase the amount of money in the market place. This tool of monetary policy is listed as one of the least used tools. This tool is not used very often, when it is it usually signals a major shift in the direction of monetary policy. According to the information I obtained from the most recent report online from the Federal Reserve was dated July 18 2001. This report went into great detail on the state of the economy. The report stated that the economy as a whole was struggling yet stable. Consumer and business confidence was down which meant that people and businesses within our economy were not spending as much money as usual. The stock market also showed a dramatic drop which is not good for our economy. However the inflation rate looked good and was not increasing at an uncontrollable rate. The Federal Reserve took action to combat failing consumer and business confidence by making multiple decreases to the federal funds target rate. The most recent monetary policy is geared towards keeping inflation in check while trying to increase the gross domestic product (GDP). The Federal Reserve report stated the following: “In these circumstances, the FOMC continues to believe that the risks are weighted toward conditions that may generate economic weakness in the foreseeable future. At the same time, the FOMC recognizes the importance of sustaining the environment of low inflation and well-anchored inflation expectations that enabled the Federal Reserve to react rapidly and forcefully to the slowing in real GDP growth over the past several quarters. When, as the FOMC expects, activity begins to firm, the Committee will continue to ensure that financial conditions remain consistent with holding inflation in check, a key requirement for maximum sustainable growth.” I believe that the Fed will try to achieve the above stated goals by possible reducing the Federal Funds Target Rate a couple more times, however I do not see them cutting the rates by a large amount as rates are already very low. Since the report which I read our countries economy is also being affected by the September 11 bombing. From newspapers and other sourced I gather that the economy has continued to decline since September 11 because of decreased consumer spending which has led to increased unemployment which has increased our economies downward spiral. The good news from this is that hopefully we are just about to the bottom of this economic cycle and will see an upward trend in our economy shortly. The monetary policy in the United States is aimed at keeping inflation low, employment high, and keep our countries GDP increasing. The lowered interest rates have helped companies to be able to borrow capital to expand their companies which should help to lower unemployment which in turn should help to increase consumer spending. Bibliography: www.federalreserve.gov www.frsbf.org Word Count: 834
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