Macroeconomic Impact on Business Operations
The central bank of the United States is the Federal Reserve, which is composed of a federal governing agency, called the Board of Governors, and 12 regional Reserve Banks (Federal Reserve [FR], 2007). The Federal Reserve (Fed) aims to achieve and maintain full employment, economic growth, and price-level stability by implementing a monetary policy that deliberately makes changes in the money supply to influence interest rates and spending. The Fed can implement a contractionary fiscal policy, that decreases government spending and/or increases taxes, or it may implement an expansionary fiscal policy that increases government spending and/or decreases taxes to stabilize the economy as needed (McConnell & Brue, 2004). Alternatively, the Fed can implement the monetary policies of easy money or tight money. Which policy to use is influenced not only by the present economy of the United States, but also Asian and Western economies. Previous Fed Chairman Alan Greenspan stated last year that the United States could not "remain an oasis of prosperity unaffected by a world?experiencing greatly increased stress" (Ip, Solomon, & Wessel, 2007). All economies and previous policy decisions must be considered.
The three tools of monetary control that are used by the Fed to influence policy and/or alter commercial bank reserves are a) open-market operations, b) the reserve ratio, and c) the discount rate, the most important being open-market operations (McConnell & Brue, 2004).
Government bonds are treasury securities issued by the United States Department of Treasury, through the Bureau of the Public Debt, and are the debt financing instruments of the federal government (Wikipedia, 2007). Open-market operati ...