On Studybay you can order your academic assignment from one of our 45000 professional writers. Hire your writer directly, without overpaying for agencies and affiliates!
Check price for your assignment
10 bids submitted. Essay Example.
The United States Monetary Policy Basic Moments
At first, let’s try to figure out what a monetary policy is and how it influence to the economy of the U.S. The term “monetary policy” is connected with things that Federal Reserve and the nation's central bank does to influence on money, demand, supply, etc. The main purposes of monetary policy are to stable price, to make people employed and moderate long-term interest rates. When monetary policy is really effective, the Fed can produce people with maximum employment and economic growth. In the USA the central bank (also well-know "bank's bank") has the authority to formulate monetary policy. The Federal Reserve uses three different tools: reserve requirements, the discount rate and open market operations. These three tools are used to determine the demand and supply of the money that are hold at Federal Reserve banks.
The Federal Fund Rate. The dollar amount placed with the Federal Reserve in turn changes the federal fund rate. So, indeed, the federal fund rate is the interest rate that that one bank charges another for getting cash overnight. The money lent out has been deposited into the Federal Reserve based on the monetary policy. Open market operations essentially means buying and selling of government-issued securities. So indeed the Fed doesn’t decide which securities dealers it will do business with. The Fed use this tool to influence the supply and demand. If Fed wants to increase reserves, it buys these securities. Open market is very effective tool and as the result, the most often used tool of monetary policy. The discount rate is the interest rate charged by Federal Reserve Banks to different depository institutions on short-term loans. It means that different institutions can get credit under three different facilities: secondary credit, seasonal credit and primary credit. The primary rate is normally referred to as the discount rate. The primary rate is usually used for short-term loans. The secondary credit rate is used for facilities that have some financial problems. Seasonal credit rates are used for institutions that need help on a seasonal basis, such as a farmer's bank.
Reserve requirements are the portions of deposits that banks must keep on deposit at a Federal Reserve Bank to cover its liabilities against customer deposits. So, by using any of its three tools the Federal Reserve can influence almost every financial aspect of our lives.
At first, let’s try to figure out what a monetary policy is and how it influence to the economy of the U.S. The term “monetary policy” is connected with things that Federal Reserve and the nation's central bank does to influence on money, demand, supply, etc. The main purposes of monetary policy are to stable price, to make people employed and moderate long-term interest rates.