Monetary Policy: Money, Credit, the Federal Reserve, and Interest Rates
Money supply and interest rates are important to individuals and businesses making decisions to finance purchases. The following articles assess conditions for financing purchases and important aspects of monetary policy. Read both and respond to the four questions in a 4- to 5-page report.
The Federal Reserve policy makers use several different tools to influence the money supply and interest rates. Identify and briefly describe these tools. Include in your answer the difference between expansionary and contractionary monetary policies.
Define and explain the three lags discussed in monetary policy. For each type identify a problem caused by the lag.
If the economy is operating below its potential output, what kind of gap exists? What kinds of fiscal or monetary policies might you use to close this gap? Can you think of any objection to the use of such policies? (Use information from Module 3 as well.)
Use information from the modular background readings as well as any good quality resource you can find. Make sure you cite all resources you use and provide a reference list at the end of your paper.
Length: 4-5 typed and double-spaced pages.
In addition to the overall quality, depth, grammar, and organization of the paper, the following will, in particular, be assessed:
The level understanding of the link between Federal Reserve actions and its affect on interest rates and monetary policy
Your ability to understand the link between current and prospective economic conditions and making decisions about major long-term financial commitments.
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