2-Discuss the principal limitations of monetary policy relative to current economic conditions?© BrainMass Inc. brainmass.com October 25, 2018, 9:17 am ad1c9bdddf
1. The charter of the US Federal Reserve Bank makes it responsible for monetary policy and maintenance of low unemployment. Specifically, the Federal Reserve has been given the responsibility of maximum employment, price stability, and moderate long-term interest rates (1). These responsibilities conflict when there is inflation. The Federal Reserve has to increase interest rates to maintain price stability. When it does this, the funds available to business become costly. The businesses reduce investment and this action reduces employment (2). The Federal Reserve has several other tools during inflation to reduce the liquidity in the market. When it uses these tools the businesses reduce investment and employment declines. Similarly, when the Federal Reserve increases interest rates to fulfill its objective of maintaining long term interest rates, it reduces business activity and this reduces employment. These responsibilities conflict with each other (3).
However, in practice, when the economy is in a recession or the economic growth rate is low, the Federal ...
Limitations and conflicts in monetary policy are explained in a structured manner in this response. The answer includes references used.
Monetary Policy and Financial Institutions in Financial Crisis
Given the recent banking industry crisis, do you think repealing the Glass-Steagall act was a mistake?
Be sure to consider effects on banks as well as on bank customers, and the market reaction to the repeal in your analysis.
Sources you can use:
Cftech.com. (n.d.). Understanding how Glass-Steagall Act impacts investment banking and the role of commercial banks. Retrieved on August 2007 from: http://www.cftech.com/BrainBank/SPECIALREPORTS/GlassSteagall.html
Heakall, R. (2003). What was the Glass-Steagall Act? Investopedia. Retrieved on August 2007 from: http://www.investopedia.com/articles/03/071603.aspView Full Posting Details