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Monetary Policy

In order to promote national economic goals, a central bank acts to influence the availability and cost of money and credit, this is known as monetary policy. The Fed has three main tools with which to carry out policy. These instruments of monetary policy are open market operations, discount policy and reserve requirements. Open market operations are the Fed's most important tool. It causes a change in the monetary base. When banks need to borrow money; they borrow it from the Fed. Discount policy denotes a change in the discount rate. The tool that is used the least is reserve requirement changes. It is not used often due to its power to tie up or to free resources. The Fed uses these tools to reach economic targets and to stabilize the economy. The United States economy has been growing over the past five years. The Fed has implemented policy in order to combat byproducts of this growth such as inflation and other effects. The present state of the economy has cha!

nged from the standard growth of the past and is now moving in a new direction.

From 1995 until 1999 the United States economy was performing incredibly well. In 1995, real gross domestic product increa


The cost of finance and the prospective rates of return to capital will be two deciding factors on how quickly investment spending will rise in the future. An expected lowering of energy prices should keep inflation in check over the coming year. GDP is forecasted to be at 21/2 percent, a growth of 2 percent.



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Approximate Word count = 803
Approximate Pages = 3 (250 words per page double spaced)


  

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