Monetary Policy Essay - 1666 Words

Monetary Policy Monetary Policy The Economy is the backbone to society. There are many factors that operate in, and govern our society’s economical structure. Factors such as scarcity and choice, opportunity cost, marginal analysis, microeconomics, macroeconomics, factors of production, production possibilities, law of increasing opportunity cost, economic systems, circular flow model, money, and economic costs and profits all contribute to what is known as the economy. These properties as well as a few others, work together to influence the economy. Microeconomics and Macroeconomics are two major components. Both of these are broken down into several different components that dictate societal norms and views. â€Å"Microeconomics†¦show more content†¦Usually this goal is macroeconomic stability - low unemployment, low inflation, economic growth, and a balance of external payments. Monetary policy is usually administered by a Government appointed Central Bank, the Bank of Canada and the Fede ral Reserve Bank in the United States.† (Federal Reserve Bank of San Francisco, 2007). Monetary policy effects the GDP inflation. â€Å"Between 1996 and 2000, real GDP in the United States expanded briskly and the price level rose only slowly. The economy experienced neither significant unemployment nor inflation. Some observes felt that the United States had entered a â€Å"new ear† in which business cycle was dead. But that wishful thinking came to an end in March 2001, when the economy entered its ninth recession since 1950. Since 1970, real GDP has declined in the United States in five periods: 1973-1975, 1980, 1981-1982, 1990-1991 and 2001.† (McConnell Brue, 2004). Unemployment Rates The unemployment rate is also affected by monetary policy. â€Å"Unemployment that is above the natural rate involves great economic and social costs.† (McConnell Brue, 2004). GDP GAP and OKun’s Law. McConnell and Brue define this as â€Å"when the economy fails to create enough jobs for all who are able and willing to work, potential production of goods and servicesShow MoreRelatedMonetary Policies And Monetary Policy Essay1309 Words   |  6 PagesMonetary policies Monetary policies are strategies used by the central bank, financial regulatory committee of currency board to regulate the amount of money supply in the economy. There are two types of monetary policies. These are expansionary monetary policies and contractionary monetary policies. Expansionary monetary policies entails increasing money supply in the economy. Expansionary monetary policies affect macroeconomic variables differently. 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