Monetary Policy, Fiscal Policy & Supply & Demand
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Monetary policy involves the regulation of the money supply and of interest rates by a central bank. In the United States, monetary policy is determined by the Federal Reserve Board. The goals of the Federal Reserve Board (the Fed) are to encourage economic growth, control inflation, reduce unemployment to acceptable levels and stabilize the exchange rate between the U.S. dollar and foreign currencies in the foreign exchange marketplace. Monetary policy is one the two ways the government can impact the economy. By regulating the cost of money, the Federal Reserve can affect the amount of money that is spent by consumers and businesses. An example of the operation of monetary policy involves decisions made by the Federal Open Market Committee to raise or lower interest rates in an effort to reduce unemployment, control inflation but continue to encourage a sustainable Fiscal policy: The term fiscal policy refers to the expenditure a government undertakes to provide goods and services. Fiscal policy also involves government financing of these expenditures. These expenditures affect the economy in a number of ways including having an affect on the inflation and unemployment rates. There are two methods of financing: taxation and borrowing. If the government does not have the tax revenue to fund expenditures, it can turn to the capital markets to borrow the necessary money. Federal and state governments have the power to raise or lower taxes, or to modify the way in wh
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Approximate Word count = 844
Approximate Pages = 3 (250 words per page)
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