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Monetary Policy

25 Pages | 6,564 Words
Zulkiply Omar, PhD (#114045)

This book describes all what you want to know about monetary policy. You will learn why such policy is undertaken, how it is carried out and by whom. The book will also explain in detail all the monetary policy tools used, how they work, and what the final outcomes are. By reading the book Everything You Need to Know about Monetary Policy you should be able to understand the relationship between money supply and some important economic indicators such as interest rates, inflation, and unemployment as well as its influence on the overall economic condition of a country. You will have a better understanding on the meaning of money supply and whether its change is due to the change in the monetary base or due to the change in the money multiplier. Factors influencing the money multiplier will be explained and from there you should be able to understand that the change in money supply is not solely controlled by the central bank, such as the Federal Reserve System (Fed) in the USA, but also influenced by depository institutions (banks) and the public. You will also learn the relationship between monetary base or high-powered money and currency in circulation and the reserves. The book Everything You Need to Know about Monetary policy will also help to explain why sometimes monetary policy is not effective in influencing the real economic variables and what are the policy targets. The book is simple enough to understand basic macroeconomic principles without losing the important details.

This book is ideal for people who want to learn about monetary policy such as university students who are taking economics courses as well as for undergraduate students majoring in economics.

An Introduction to Monetary Policy

The President of the Federal Reserve System, which is popularly known as the Fed, has a very high profile job both in the national and international context. Every time the Fed makes an announcement about the position of the economy, business leaders and all other interested parties will pay close attention. It is a big event with a large impact on businesses all over the world, and on the overall economic performance of many countries in addition to the national economy. Have you ever wondered what the reason behind this is?

The Fed is the central bank of the USA. It has a very important responsibility of carrying out the monetary policy of the country. Monetary policy is one of the tools used by policy makers to influence the economic condition of a country through the money supply. It can fuel up the aggregate demand during an economic downturn and slow it down during a high growth period. So, money supply will work as an economic stabilizer by working as a catalyst to speed up economic growth or as a break to calm it. The money supply is handled by the central bank of any country by using several tools. This book will explain each of the tools used, how they work, and their effectiveness. Be reminded, sometimes central banks and the Fed are used interchangeably. When we refer to the Fed, keep in mind it is applicable to central banks of the other country as well. However, other central banks may differ slightly in terms of their rules and regulations, conduct, and common practices. But the fundamental issues are still the same. Therefore, this book is applicable to most countries with minor adjustments to suit local requirements.

To some people monetary policy sounds too technical and too complicated. But don’t forget that monetary policy comes from the word “money” which is not strange to anyone. So, the Fed is concerned with money, which is of interest to everyone. We receive our paycheck in terms of money and we use money to buy goods and services. In short, money is the intermediary for many human activities, directly or indirectly. The invention of money as a legal tender for business transactions in all countries in the world simplifies our life significantly. We are free from the hardships of a barter system for trade; it is hard to fairly trade cows for household supplies! What’s more, you are not going to give up one cow just for a bushel of wheat.

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Zulkiply Omar, PhD

Active since Mar 2014

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