Monetary Policy
Monetary Policy
Ulrica Clark
Chapter 15
Monetary Policy
Monetary policy has some basic goals: to promote "maximum" sustainable output and employment and to promote "stable" prices. The term "monetary policy" refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.
The Fed can not control inflation or influence output and employment directly; instead, it affects them indirectly, mainly by raising or lowering a short-term interest rate called the "federal funds" rate. The Federal Reserve has certain tools at its disposal to control monetary policy, open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and......
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