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Macroeconomic Impact on Business Operations
Introduction
The monetary policy consists of three tools used by the Federal Reserve, also known as the Fed, to control the money supply; open-market operations, reserve ratio, and the discount rate. These tools influence the money supply and in turn affect macroeconomic factors such as the gross domestic product (GDP), the unemployment rate, the inflation rate, and the interest rate. gMost economists believe that monetary policy influences economic activity and prices by affecting the availability and cost of money and credit to producers and consumers.h (Meulendyke, 1998, p. 189). The goal of the Fed is to use the correct combinations of monetary policies to achieve a balance between economic growth, low inflation, and a reasonable rate of unemployment.
Federal Reserve Tools
Open-Market Operations
The Fed uses the publicly traded (open) market to buy and sell government securities to and from commercial banks and the public. There are three common types of government securities; bonds, notes, and bills issued by the U.S. Treasury and managed through the Fed. The Fed issues new treasury bonds and notes through the Treasury Direct program and issues new treasury bills (T-Bills) at auction at any Federal Reserve Bank. The Fedfs open-market committee (FOMC) meets regularly to evaluate the economy and decide whether to buy or sell securities therefore, changing the supply of money in circulation. gOpen-market operations are the Fedfs most important instrument for influencing the money supply.h (McConnell & Brue, 2004, p. 270).
Influences
The Fed uses the ope ...