Paper 2 final

Paper 2 final - Michael Samuels Wilson Paper 2 Monetary...

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Michael Samuels 4/4/10 Wilson Paper 2 Monetary Policy The ever-changing financial systems and macroeconomic factors create constant debate over monetary policies used in the United States and around the world. Over the last 30 years the way government has tackled inflation, interest rate, and price issues has evolved just as much as other technologies such as televisions or automobiles have. As more and more research is conducted economists slowly change their perspective on monetary policy. In early years of monetary policy, The United States experienced huge swings in inflation and price level that for people living the US created problems in their everyday life as the value of their money changed so drastically. 1 In today’s economy, things are very different than they were when the Federal Reserve Board, the leading force in economic policy, was created. Today’s policies present much fewer economic swings, and more stable prices. Evaluating monetary policies has become much easier to understand and more public in nature. With the gold standard increasing becoming obsolete due to the lack of necessary supply of gold, the US government subsequently abolished this method of currency valuation on August 15, 1971 at the Bretton Wood conference. With the US dollar no longer being supported in a pegged system it had to now stand on its own. In order for 1 Woodford
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this system to succeed additional government intervention was necessary to protect the strength of the dollar as a result modern day monetary policy was born. One of the initial changes, and something that has increasingly become more important, was the public announcing of interest rates. The lack of transparency has always plagued the financial markets, most recently the sub-prime mortgage crisis, and with a change in monetary policy theory a new outcry for public information followed. In response the US Government began publicly announcing interest rates, and since has continuously taken steps to make more decisions clear. Initial attempts at interest rate targeting to control inflation and the countries economy weren’t very successful and created a pattern that economist and professor Marvin Goodfriend called the “Stop, Go” Policy. His theory is based on the results of government’s lack of foresight with interest rates and sudden swings in inflation and
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Paper 2 final - Michael Samuels Wilson Paper 2 Monetary...

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