Monetary policy focuses on expansionary or contractionary policies. Banks use open market operations to add or take money from the system. Bonds are bought to add money to the system and sold to take money out of circulation.
Monetary policy is the main job of the Fed (or was, before the current economic situation). It is used more to curb inflation (contractionary policy). -Megan Myers
Monetary policy theory stems from Keynesian economic theory, and is, in a sense, a much more pointed set of beliefs, in which the government manipulates the supply and availability of money. By either modifying the reserve ratio, the availability of bonds and other government assets (Open Market Operations), or the discount rate of the Federal Reserve, the government can effectively influence the interest rate and thus inflation. Just today the Federal Reserve announced that it would buy $600 billion in bonds, which it expects will lower the unemployment rate down the line. -Ian Carroll
Monetary policy basicaly says that a country controls the suppy of money. Its all about the growth and stability of an economy. Other names for monetary policy are... expansionary policy and contradictionary policy.
Monetary policy uses three tools in order to implement its policy, according to the type of economic problem we are facing. The first is used by the Federal Reserve, it lowers or raises the reserve ratio to either increase or decrease money supply in the economy. Second is the Discount Rate, where if a bank runs out of money they loan it from either another bank or the FED. The Discount Rate has a very high interest and is used as a window of last resort. Lastly is the Open Market Operations where the Federal Open Market Commision either buys or sells bonds to increase/decrease the money supply.
Reserve Ratio and Discount Rate should definitely only be used in dire circumstances- abusing these rates would cause an uproar. OMO seems fairly effective as a secure way to add to the domestic money supply, as long as people are willing to buy bonds from the government. Of course, judging by irrational human behavior, this may not always be the case, so OMO as a long-term solution to adjusting the economy seems dangerous.
Monetary policy seems to have some logically sound ideas; but as the current recession of 2008 has proved, the abilities and scope of the policy are stretched to the limits and seem ineffective.
The government adjusts the reserve ratio, discount rate, and OMO to slow or speed up the economy. Usually OMO is only used because it is less severe. The government drastically cut the discount rate so banks would want to borrow from the government, not each other.
The Monetary Policy school demonstrates the strategy of slowing or speeding up the economy. This is done by adjusting the discount rate and reserve ratio. The government wants the banks to come to them therefore they severly cut the discount rate.
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to set up objectives aimed towards the growth and stability of the economy. It is contrasted with fiscal policy, which refers to government borrowing, spending and taxation
Monetary policy can be either expansionary or contractionary, but is usually associated with contractionary. The Fed administers this policy. Tools include open market operations in the form of buying and selling bonds as well as the discount rate and reserve ratio. The last two are usually left for last resort but recently have been used more and more.
Monetary Policy deals with the OMO, reserve ratios, and discount rates. These three tools are used to alleviate pressure from contractionary and expasionary policies (inflation and recession).
Monetary Policy, carried out by the Federal Reserve, deals with keeping inflation in control. They believe that reserve ratio and discount rates are only used in extreme circumstances, but OMO is what the Fed uses the vast majority of the time. The Fed buys and sells bonds in order to keep the inflation in control. I believe that Monetary Policy is good to a point, but they are too focused on reducing inflation that they don't work on fixing other problems, like unemployment.
Monetary policy makes a lot of sense to me in the way that the Fed can control the country's money supply by selling or buying bonds to the people. It seems very logical and effective in regulating inflation. I agree with Bdan that it cannot control unemployment. This is quite the disadvantage.
Yes monetary policy is carried out for the soul purpose of combatting inflation throught the buying of selling bonds, therby controlling money supply, and therby increasing or decreasing the reserve ratio or discount rate imposed on commercial banks; but my guess as to why one of the reasons unemployment cannot always be directly tackled by the Fed is that behavioral economics plays a key role in this undertaking and that despite an increase or decrease in bank loans you'll always have greedy people on this planet and they won't necessarily trickle down their money or the poor people won't necessarily pay off all their ridiculous borrowing thereby amplifying unemployment. Wow that was a sentence...
Monetary policy focuses on expansionary or contractionary policies. Banks use open market operations to add or take money from the system. Bonds are bought to add money to the system and sold to take money out of circulation.
ReplyDeleteMonetary policy is the main job of the Fed (or was, before the current economic situation). It is used more to curb inflation (contractionary policy). -Megan Myers
ReplyDeleteDeals with the money market and the relationship between interest rates and the quantity of money in the system. this is viewed as a private market
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ReplyDeleteMonetary policy theory stems from Keynesian economic theory, and is, in a sense, a much more pointed set of beliefs, in which the government manipulates the supply and availability of money. By either modifying the reserve ratio, the availability of bonds and other government assets (Open Market Operations), or the discount rate of the Federal Reserve, the government can effectively influence the interest rate and thus inflation. Just today the Federal Reserve announced that it would buy $600 billion in bonds, which it expects will lower the unemployment rate down the line. -Ian Carroll
ReplyDeleteMonetary policy basicaly says that a country controls the suppy of money. Its all about the growth and stability of an economy. Other names for monetary policy are... expansionary policy and contradictionary policy.
ReplyDeleteMonetary policy uses three tools in order to implement its policy, according to the type of economic problem we are facing. The first is used by the Federal Reserve, it lowers or raises the reserve ratio to either increase or decrease money supply in the economy. Second is the Discount Rate, where if a bank runs out of money they loan it from either another bank or the FED. The Discount Rate has a very high interest and is used as a window of last resort. Lastly is the Open Market Operations where the Federal Open Market Commision either buys or sells bonds to increase/decrease the money supply.
ReplyDeleteReserve Ratio and Discount Rate should definitely only be used in dire circumstances- abusing these rates would cause an uproar. OMO seems fairly effective as a secure way to add to the domestic money supply, as long as people are willing to buy bonds from the government. Of course, judging by irrational human behavior, this may not always be the case, so OMO as a long-term solution to adjusting the economy seems dangerous.
ReplyDeleteMonetary policy seems to have some logically sound ideas; but as the current recession of 2008 has proved, the abilities and scope of the policy are stretched to the limits and seem ineffective.
ReplyDeleteEasily has been proven by the government that this concept works very well. By controlling money supply you can effect the entirety as a whole.
ReplyDeleteThe government adjusts the reserve ratio, discount rate, and OMO to slow or speed up the economy. Usually OMO is only used because it is less severe. The government drastically cut the discount rate so banks would want to borrow from the government, not each other.
ReplyDeleteThe Monetary Policy school demonstrates the strategy of slowing or speeding up the economy. This is done by adjusting the discount rate and reserve ratio. The government wants the banks to come to them therefore they severly cut the discount rate.
ReplyDeleteMonetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to set up objectives aimed towards the growth and stability of the economy. It is contrasted with fiscal policy, which refers to government borrowing, spending and taxation
ReplyDeleteMonetary policy can be either expansionary or contractionary, but is usually associated with contractionary. The Fed administers this policy. Tools include open market operations in the form of buying and selling bonds as well as the discount rate and reserve ratio. The last two are usually left for last resort but recently have been used more and more.
ReplyDeleteMonetary Policy deals with the OMO, reserve ratios, and discount rates. These three tools are used to alleviate pressure from contractionary and expasionary policies (inflation and recession).
ReplyDeleteMonetary Policy, carried out by the Federal Reserve, deals with keeping inflation in control. They believe that reserve ratio and discount rates are only used in extreme circumstances, but OMO is what the Fed uses the vast majority of the time. The Fed buys and sells bonds in order to keep the inflation in control. I believe that Monetary Policy is good to a point, but they are too focused on reducing inflation that they don't work on fixing other problems, like unemployment.
ReplyDeleteThis policy is best suited to fighting inflation by buying or selling bonds (open market operations) to increase or decrease the money supply.
ReplyDeleteMonetary policy makes a lot of sense to me in the way that the Fed can control the country's money supply by selling or buying bonds to the people. It seems very logical and effective in regulating inflation. I agree with Bdan that it cannot control unemployment. This is quite the disadvantage.
ReplyDeleteYes monetary policy is carried out for the soul purpose of combatting inflation throught the buying of selling bonds, therby controlling money supply, and therby increasing or decreasing the reserve ratio or discount rate imposed on commercial banks; but my guess as to why one of the reasons unemployment cannot always be directly tackled by the Fed is that behavioral economics plays a key role in this undertaking and that despite an increase or decrease in bank loans you'll always have greedy people on this planet and they won't necessarily trickle down their money or the poor people won't necessarily pay off all their ridiculous borrowing thereby amplifying unemployment. Wow that was a sentence...
ReplyDelete