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Direction Of Monetary Policies - Document preview page 1

Direction Of Monetary Policies - Page 1

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Direction Of Monetary Policies

An exploration of how central banks influence economic stability through monetary policies.

Christopher Lee
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12 months ago
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Direction Of Monetary Policies - Page 1 preview imageDIRECTION OF MONETARYPOLICIESMonetary policies are strategies usedto control money supply by acountry’s monetary authority . TheFederal Reserves has tried to adoptconventional monetary policies overthe last 3-5 years.
Page 2 of 4
Direction Of Monetary Policies - Page 2 preview image•The main goal is to stimulate economic growth byreducing the interest rate required on federalfunds. Since the cost of borrowing is lower,agents spend more and businesses produce moreand employ more manpower.•The supply of money has steadily been increasingover the last 3-5 years.•This is due to implementation of expansionarymonetary policies by the federal reserve whichresults to lowered interest rates and increasedaggregate demand.
Page 3 of 4
Direction Of Monetary Policies - Page 3 preview image•However the money market has a way of balancing itsself such that there is always a cycle which tries to keepthe economy at an equilibrium.•When interest rates are low, people want to borrowmore from the banks thus raising demand forborrowed funds which in turn causes investors or thesupplier of funds to the banks to raise the interestearned by their funds.•The banks are forced to increase their cost of lendingto meet the high costs of acquiring those funds.
Page 4 of 4
Direction Of Monetary Policies - Page 4 preview image•This raises interest rates on borrowed fundsthus reducing the ability of people to borrowwhich in turn reduces the money circulating inthe economy.
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Document Details

Subject
Economics

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