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U.S. MONETARY POLICY IN THE 1990s
Monetary Policy
Monetary policy refers to actions the Federal Reserve (Fed) takes to influence the amount of money and credit in the U.S. economy. Interest rates and the performance of the economy are affected by what happens to money and credit. The rapid increase in the supply of money and credit over time could result in inflation, a sustained increase in the general level of prices, which translates into a decline in the value or purchasing power of money. The goals of monetary policy are to promote maximum employment, stable prices, and moderate long-term interest rates. Effective monetary policy by the Fed can maintain stable prices thus supporting economic growth and employment ("Monetary Policy Basics, NDI).
Discussion
The low inflation rates of the 1990s were not unique, but were a marked change from the 1970s and 1980s. The 1950s and 1960s were also periods...
A highly volatile inflation rate creates unnecessary risk for both debtors and creditors. Inflation stability coupled with a concurrent stability in both economic growth and unemployment led many to conclude the Fed was doing an amazing job. However, Mankiw asserts the Fed, and Fed Chairman Alan Greenspan, may have also been lucky.
The Fed's job is to respond to shocks in the economy in order to stabilize output, employment and inflation. A demand shock, such as a stock market crash, pushes output, employment, and inflation in the same direction and is relatively easily handled by lowering interest rates to increase the supply of money. Supply shocks, such as a jump in oil prices, are likely to be more complex, fueling inflation and threatening recession, leaving the Fed the task of…
References
Mankiw, N.G. (2001, August) U.S. monetary policy during the 1990s. Social science research network. Department of Economic Research; National Bureau of Economic Research, Harvard University. Retrieved October 18, 2012, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=279232
"Monetary policy basics." (NDI). Federalreserveeducation.org. Retrieved October 18, 2012, from http://www.federalreserveeducation.org/about-the-fed/structure-and-functions/monetary-policy/
Nelson, C.R. (2010, January 22). Macroeconomics: an introduction. Chapter 9: Monetary Policy, Internet Edition. Retrieved October 18, 2012, from http://www.econ.washington.edu/user/cnelson/Chap09.pdf
Monetary Policy In the United States, the Federal Reserve system is charged with implementing monetary policy (Investopedia, 2013). Monetary policy is essentially any the output of any central bank that seeks to manage an economy by means of manipulating the supply of money in the economy (Investopedia, 2013). The Federal Reserve (2013) defines monetary policy as what it does to "influence the amount of money and credit in the U.S. economy."
Monetary Policy Every economic activity in the United States is related to the policies that are decided by the monetary policies of the nation that are formulated. This involves all activities like purchase of houses, starting up of new business enterprises, and expansion of businesses, investments in new plants or machinery. It also affects our investment decisions like putting our investments in banks, bonds, or the stock market. It is also
" (ECB, 2007) Operational efficiency is held to be the most important of all the principles of operation for the ECB and can be defined as "the capacity of the operational framework to enable monetary policy decision to feed through as precisely and as fast as possible to short-term money market rates. These in turn, through the monetary policy transmission mechanism, affect the price level." (ECB, 2007) Equal treatment and harmonization
Monetary Policy Any change in the central back policy or the bank reserves, which is made to influence the interest rates and thus the investment, employment or production, is called the monetary policy. If the monetary authority wants to increase production, they need to increase the bank reserves. The bank then expands the money supply, which in turn reduces the interest rates. Monetary policy is one of the tools that a
Monetary policy is crucial to the economy and impacts all types of economic and financial decisions individuals make. For example, depending on the state of the economy, individuals may decide whether to obtain a loan to purchase a new car or house or to start their own company, whether to expand a business by investing in a new plant or equipment, and whether to put savings in a bank, in
Monetary Policy and Mortgages The businesses of mortgages lead to their own problems. Recently it was stated by the attorney for the Western District of Missouri that the owner of a mortgage invest company and three employees of Ameriquest Mortgage were charged with an indictment. The effort made by them was to cheat Ameriquest and some investors through the process of false loans for mortgage. Brent Michael Barber who is 40