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Monetary Policy Paper 1
Monetary Policy Paper
Chris Limon
MBA 501
Donna Danns
September 26, 2006
Monetary Policy Paper 2
Introduction
Fiscal and monetary policies focus on quickly returning the economy to sustainable, healthy growth. Any type of fiscal relief package will boost consumer and business spending and can augment the nation's long-term growth potential. Expansionary monetary policy can stimulate growth and provide insurance against the possibility of deflation. This paper will present information on four topics: (1) tools used by the Federal Reserve to control the money supply, (2) how these tools influence the money supply and in turn affect macroeconomic factors? (3) how money is created? (4) recommended monetary policy combinations that best achieve a balance between economic growth, low inflation, and a reasonable rate of unemployment.
Monetary policy is usually administered by a Government appointed "Central Bank", the Bank of Canada and the Federal Reserve Bank in the United States. According to the Encarta the definition of monetary policy is the following economic principles and programs adopted by a government that manage the growth of its money supply, the availability of credit, and interest rates. In the United States, the Federal Reserve Board determines monetary policy.
Fiscal policy is the use of the government budget to affect an economy, Weils points out that when "the government decides on the taxes that it collects, the transfer payments it gives out, or the goods and services that it purchases, it is engaging in fiscal policy" (1). As Weils (2002) further explains, "the primary econom ...