You Decide - Michele Baker Business Economics GM 545 You...

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Michele Baker Business Economics GM 545 You Decide Summer A 2009 [email protected] 1
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Changes in FED policy have the ability to affect interest rates and if used wisely this can have a positive effect on not only depository institutions, but also businesses, and consumers. Open Market Operations are sales and acquisitions of U.S. Treasury and federal agency securities. This is the FED’s primary means for implementing monetary policy. The FED’s goal from open market operations has fluctuated over time. During the 1980’s, the focal point moved toward achieving a specific level of the federal funds rate. Then in 1995, the FED began to focus solely on its target level for the federal funds rate. Now since 2000, the heart of their interests falls on long-term price consistency and sustainable economic growth. Ultimately, the goal with Open Market Operations is to change the money supply available in the economy. By selling bonds, the money supply will be reduced. A bond broker will write a check to the FED for the bond. Once the check clears, that money goes nowhere. The broker now has a bond, and no one has that money, causing the total money supply to shrink. The goal is to ultimately reduce inflation or reduce prices. In my research, everything shows that this is the most widely used form of influencing the money supply. Therefore, I would have to agree with Patricia and Allison in this case. By selling bonds commercial depository institutions reserves are reduced. Monetary Policy is that by which the government controls the supply, availability, and cost of money or rates of interest. The goal is to stimulate strength and expansion of the economy. Expansionary Monetary Policy increases the economy’s total supply of currency. During a recession, this is an approach designed to fight unemployment by also lowering interest rates. Fiscal Policy is a discretionary policy that includes planned changes in tax collection
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You Decide - Michele Baker Business Economics GM 545 You...

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