Federal Reserve Bank
August 9, 2012
The United States, was economically influenced by both domestic and global events in 2011. The Japanese earthquake left a major fiscal effect on the world. Monetary situations of importance is the reason states have central banks. These banks act as the state's money directors.
Purpose and Function of Money
Money has a main purpose and function in the economic world. It functions as a regulation of well-known dealings for government systems. Monetary units can be calculated by the quality of the other forms of currency such as commodities. The economic value of each unit of measurement is normally discovered by the government of which it is settled.
In the United States, the Federal Reserve controls the domestic monetary system policy. ...view middle of the document...
In 1913, Congress decided that it was necessary to proportion the fiscal needs of the United States and consequently the Federal Reserve Act was passed. The FED acts as a money director because it is unachievable for money to be self-controlled. The Federal Reserve expresses several monetary system policies in an attempt to keep up production, jobs, steady prices. “The stimulus program will affect the money supply by increasing an amount equal to the change in the money base, times the money multiplier ("The Federal Reserve and Monetary Policy,"2002).
Evident indicators within the economy
Monetary system policies is the regulation of interest rates. High interest rates will stimulate savings rather than spending as one can earn more by accumulating money in the bank, and it is more valuable to take out loans in comparison to low interest rates. When inflation is high, interest rates will be raised to curb downfall. Inflation is usually the consequence of aggregate requirement exceeding aggregate accumulation. With the restricted amount of assets applicable, the accumulation for goods and advantages are restricted. When AD exceeds AS, the value increases immediately, which advances to high inflation. High interest rates intimidate spending as acquiring loans are expensive. This will lower the aggregate requirement and ultimately return the AD and AS for the evenness point or the peaceful zone. It would also rely on the economic zone to which the nation troubles belongs. Some zones display more financial improvement than others because they are administered by those determined to take part in investment and business opportunities.
The Federal Reserve and Monetary Policy.(2002).Retrieved from http://www.colorado.edu/Economics/courses/econ2020/section11/section11-main.html
David C. Colander. (2010). Macroeconomics, 8e. Chapter 13. Retrieved on August 8, 2012, ECO372 website.