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Monetary Policy And Its Affect On Macroeconomic Factors

Abstract
This paper is a discussion of how a monetary policy effects specific macroeconomic factors as GDP, unemployment, interest rates and inflation. Included in the discussion is how different combinations of monetary policy tools are utilized to manage an economy.
Monetary Policy and Its Effect on Macroeconomic Factors

Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth. (McConnell & Brue, 2004, p. 268, ¶ 1)
A basic discussion on how commercial banks and the banking system create money is needed to understand how the Fed utilizes tools at its disposal to implement a monetary policy.
The United States has a fractional reserve banking system in which only a fraction of the money supply is held in reserve as currency. (McConnell & Brue, 2004, p252, ¶ 5) Since......


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Approximate Word Count: 1323
Approximate Pages: 6 (250 words per double-spaced page)

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