Monetary policy changes have influence over unemployment, short-term production and in the long-run affect prices and inflation rates. What monetary policy can do to heighten economic performance is a challenge that must be understood by economic policymakers. What monetary policy cannot do to raise economic performance is equally important. If a lower rate of inflation is achieved when a central bank slows the money growth rate it can take awhile to reach the transition state of lower inflation. A period of distressed economic activity is also to be expected. Higher unemployment is the result. Sometimes the Federal Reserve can go too far in extending the money supply, which can lead to inflation.
[...] I fear so. Money then will be printed by the central bank by buying government debt or other assets. Basically, money is but an abstract accounting concept. making purchases, traders borrow against their future production if they do not currently have a trading surplus. Money is created as evidence of that debt. Putting goods and services back on the market repays the debt, and extinguishes the money. In other words, money is borrowed into existence, and is extinguished as the loan is repaid. [...]
[...] Since money supply is such an important part of monetary policy, the government uses monetary policy to keep up economic growth, low inflation and low unemployment. The Federal Reserve Board of Governors determines U.S. monetary policy. Today, inflation is still worrisome because of energy prices. Actually, the U.S. economy has performed remarkably well when one considers the increase in military spending, as well as the storm damage from Hurricane Katrina along the Gulf Coast. Under the current economic conditions, the Federal Reserve could continue to raise target interest rates. [...]
[...] The open market operation is probably the most frequently used and most flexible monetary policy instrument. Even though sometimes changing the required reserve ratio can achieve the same result. And a discount rate change at times may reinforce open-market operations. Sometimes it signals a change in the Federal Reserve's fundamental evaluation of the economy—sort of a signal or announcement. A common methodology is to try to identify "monetary policy shocks" movements in some measure of monetary policy that cannot be predicted or explained contemporaneously with the economic variables that typically drive monetary policy. [...]
[...] It will be interesting to observe the future route of monetary policy in this country. An important shift in macroeconomic behavior will be the result. The manner monetary policy is played out in days to come will be as distinct and different as the way policy was conducted pre- and post 1979. Estimating policy rules for the coming era will not be an easy task. The new world order of globalization will at times require intense analysis. A pro-active stance for inflation control is paramount. [...]
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