Examples of monetary policy in the following topics:
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- When the Fed conducts monetary policy, the policy affects the federal funds rate first.
- By the time monetary policy influences an economy, the economy is already growing, and the monetary policy causes the economy to grow quickly, creating inflation.
- Over time, monetary policy influences the intermediate targets.
- The Fed's monetary policy coincides with the business cycle.
- Monetary policy is supposed to do the opposite and smooth out the business cycles.
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- Unfortunately, a central bank using monetary policy may create more instability for an economy because of time lags, so we discuss several problems of monetary policy.
- The Fed can use expansionary or contractionary monetary policies.
- Moreover, the Fed can use Open-Market Operations, Discount Policy, and Reserve Requirements to implement a monetary policy.
- The Fed, for example, wants to expand the money supply by using expansionary monetary policy.
- Contractionary monetary policy works similarly to expansionary monetary policy.
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- Explain why open-market operations are such an important monetary tool.
- Identify the problems in using discount policy as a monetary tool.
- Explain why reserve requirements are such a powerful monetary tool.
- What are the time lags, and why do they cause problems for monetary policy?
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- The Fed cannot influence the monetary policy goals directly.
- Unfortunately, three time lags hinder monetary policy.
- Finally, a monetary policy does not impact the economy immediately.
- Economists refer this to procyclical monetary policy, which means the Fed amplifies the business cycle.
- Monetary policy can become ineffective in some cases.
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- Goal of monetary policy is to increase the well-being of society.
- The Fed has six monetary policy goals, which are:
- Thus, the Fed uses monetary policy to spur strong economic growth.
- For example, if the Fed pursues monetary policy that expands the money supply, boosting national output and lowering the unemployment rate.
- However, expansionary monetary policy can trigger inflation.
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- Fed's second monetary policy tool is the discount policy.
- The Fed could use the discount rate for expansionary monetary policy.
- Contractionary monetary policy works similarly to expansionary monetary policy.
- Rate change provides information to the financial markets because the Fed conducts monetary policy secretly.
- Public and financial analysts scrutinize the federal funds market to predict monetary policy.
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- As a vital tool of monetary policy, interest rates are kept at target levels - taking into account variables like investment, inflation, and unemployment - for the purpose of promoting economic growth and stability.
- In the U.S., the Federal Reserve (often referred to as 'The Fed') implements monetary policies largely by targeting the federal funds rate.
- Monetary policies are referred to as either expansionary or contractionary.
- Most central banks around the world assume and expect that lowering interest rates (expansionary monetary policies) would produce the effect of increasing investments and consumptions.
- This change in fiscal policy shifts equilibrium in the goods market.
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- The Federal Open Market Committee puts monetary policy into action.
- Finally, the financial analysts pay close attention to the chairman's policies and speeches.
- The Executive Board implements monetary policy, while the Governing Council determines monetary policy.
- However, an EU country loses control of its monetary policy.
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- In economics, a Taylor rule is a monetary-policy rule that stipulates how much the Central Bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions.
- That is, the rule "recommends" a relatively high interest rate (a "tight" monetary policy) when inflation is above its target or when output is above its full-employment level, in order to reduce inflationary pressure.
- It recommends a relatively low interest rate ("easy" monetary policy) in the opposite situation to stimulate output.
- Overnight rates in Turkey are estimated to fall in 2013, indicating a loosened monetary policy.
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- Consequently, the Fed has complete control over the monetary base.
- Although the money multiplier relates the total monetary base to the money supply, the money multiplier also works for changes in the monetary base.
- Banks can weaken the ratio between the monetary base and money supply.
- Monetary base (B) would cancel, leaving M2 = M2.
- Fed has problems implementing monetary policy if the money multipliers are unstable.