Essay on Monetary Policy
I chose to research and write on the topic of monetary policy. My two main sources of information were www.federalreserve.gov and www.frsbf.org. From my research I would define monetary policy as the macroeconomic act of keeping the country financially stable. According to www.frsbf.org “The object of monetary policy is to influence the performance of the economy as reflected in such factors as inflation, economic output, and employment. It works by affecting demand across the economy—that is, people's and firms' willingness to spend on goods and services”. The information that I located suggested that the main issues that monetary policy deals with are inflation and unemployment which usually affect each other. …show more content…
The reserve requirement is the percentage of deposits in demand deposit accounts that financial institutions must set aside and hold in reserve, in other words it is a minimum amount of money which a bank must keep on hand and is unable to lend out. By increasing the reserve requirement the Fed can lower the amount of money in the open market, and by decreasing the reserve requirement the Fed can increase the amount of money in the market place. This tool of monetary policy is listed as one of the least used tools. This tool is not used very often, when it is it usually signals a major shift in the direction of monetary policy.
According to the information I obtained from the most recent report online from the Federal Reserve was dated July 18 2001. This report went into great detail on the state of the economy. The report stated that the economy as a whole was struggling yet stable. Consumer and business confidence was down which meant that people and businesses within our economy were not spending as much money as usual. The stock market also showed a dramatic drop which is not good for our economy. However the inflation rate looked good and was not increasing at an uncontrollable rate. The Federal Reserve took