Monetary Policy And Monetary Policies Essay
Analysis of Monetary Policy
Generally, there are two forms of monetary policy, expansionary and contractionary. An expansionary policy accelerates economic growth while a contractionary policy restricts it. They are frequently utilized in accordance with the economic state; each with their pros and cons.
An expansionary monetary policy is achieved when the central bank, or Federal Reserve (FED), increases the money supply in the economy as a means to close a recessionary gap. By increasing the amount of money in an economy interest rates decrease and corporate investment and expansion are seen. This then lowers unemployment rates. Additionally, it can lead to an overall increase in wages and subsequent consumer spending thereby allowing for increased aggregate demand and economic growth. The downside of expansionary policy is that with this…