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Monetary And Fiscal Policy - Paper

Monetary And Fiscal Policy

The Monetary and Fiscal Policies, although controlled by two different organizations, are the ways that our economy is kept under control. Both policies have their strengths and weaknesses, some situations favoring use of both policies, but most of the time, only one is necessary.
The monetary policy is the act of regulating the money supply by the Federal Reserve Board of Governors, currently headed by Alan Greenspan. One of the main responsibilities of the Federal Reserve System is to regulate the money supply so as to keep production, prices, and employment stable. The �Fed� has three tools to manipulate the money supply. They are the reserve requirement, open market operations, and the ...

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securities on the open market. This is used to control overall money supply. If the Fed believes there is not enough money in circulation, then they will buy the securities from member banks. If the Fed believes there is too much money in the economy, they will sell the securities back to the banks. Because it is easier to make gradual changes in the supply of money, open market operations are use more regularly than monetary policy.
When member banks want to raise money, they can borrow from Federal Reserve Banks. Just like other loans, there is an interest rate, or a discount rate, the third tool of the monetary policy. If the discount rate is high, then fewer banks will be inclined to borrow, and if it is low, more banks will (theoretically) borrow from the reserve banks. The discount rate is not used as frequently as it was in the past, but it does serve as an indicator to private bankers of the intentions of the Fed to constrict or enlarge the money supply.
The monetary policy ...

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Monetary And Fiscal Policy. (2004, June 2). Retrieved November 30, 2024, from http://www.essayworld.com/essays/Monetary-And-Fiscal-Policy/8817

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PAPER DETAILS

Added: 6/2/2004 12:08:08 PM
Category: Economics
Type: Free Paper
Words: 925
Pages: 4

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