Monetary Policy :: essays papers

pecuniary PolicySummary The recent tax cuts and matter to group rate cuts piddle helped put the economy back on track. He says that the strong appendage of the U.S. economy in recent months is neither an illusion nor an accident, but it reflects true monetary and fiscal form _or_ system of government over the past year. He says that there has been a key pile in consumer spending, and that the main reason for that surge was the enactment of the tax cut in early 2001. He excessively stated that the repeated reductions by the Fed in short-term touch on pass judgment supported the expansionary effect of the tax cut. Even though the interest rate reductions were not enough to prevent the recession that began in manifest of last year, the lower interest rates did stimulate consumer spending finished a variety of channels.Analysis This obligate is also a effectual example of how the aggregate demand curve can be shifted by the determinant of monetary policy. Please ref er again back to article 4, which explains the principle of the aggregate demand curve. By definition, Monetary Policy is a policy influencing the economy through changes in the banking systems militia that influence the money supply and credit availability in the economy. The subprogram of monetary policy is to improve the economy by either increase or change magnitude the real income (or GDP) of the U.S. economy so that the economy is path at its potential. The Federal Reserve (The Fed) is responsible for conducting monetary policy for the linked States Economy. There are three ways that the Fed conducts monetary policy 1) Changing the reserve requirement. 2) Executing open market operations (buying and selling bonds). 3) Changing the discount rate. This article talks about the Fed decreasing the discount rate to stimulate the economy. The discount rate is the rate of interest the Fed charges for loans it makes to banks. An increase in the discount or interest rates ma kes it more expensive for banks to borrow from the Fed. A discount rate go down makes it less expensive for banks to borrow. This article is talking about how the Fed reduced the discount rate making it easier for banks to borrow, increasing the money supply. The decrease in the discount rate increases the money supply because it lowers the bank=s be and allows it to borrow more money from the Fed.