Monetary Policy For A Country Controls The Supply Of Money Essay

1009 Words Oct 5th, 2014 5 Pages
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The Federal Reserve sets a monetary policy so that it can make sure we are at full-employment, have stable prices, and at least moderate long-term interest rates. In the first article that I read that was titled “Monetary Policy Relief: Finally Adding growth” they start off by talking about how to Federal Reserve is trying to promote a new policy called “quantitative easing” that will lift economic growth above it’s extremely low “new normal”. The first connection from the article to the book that I made was this, the textbook says that the quantity theory of money is a product of the classical school of economics. It assumes that wages, prices, and interest rates are flexible in the long run, allowing the labor, product, and capital markets to adjust to keep the economy at full employment. The current “new normal” is the GDP from 2008 that had a high unemployment rate and a slowing growing GDP. This is the second connection I have made with the article to our textbook. In our textbook it talks about how the Fed will use its tools of monetary policy to promote one of its twin goals of economic growth with low unemployment. The advertised policy from the financial market say that the Federal Reserve should have a steady growing GDP, money supply, jobs, and much more, but instead…

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