U.S. Monetary Policy and What the Federal Reserve :: essays research papers

U.S. Monetary Policy and What the Federal Reserve does.According to the Congressional Budget power monetary policy is, The strategy of influencing movements of the bills supply and interest rates to affect output and inflation. An "easy" monetary policy suggests faster growth of the money supply and initially lower short- frontier interest rates in an attempt to increase aggregate demand, but it may lead to a high rate of inflation. A "tight" monetary policy suggests slower growth of the money supply and higher interest rates in the near term in an attempt to reduce inflationary pressure by lowering aggregate demand. In the United States it is the Federal Reserve System that is responsible for be and implementing these policies. In the United States the Federal Reserve is made up of a gameboard of Governors, which consists of seven members, all of whom are appointed by the president and sustain by the Senate. Of these seven, the president appoints one to be cha irman of the Board of Governors. The current chairman of the United States Federal Reserve is Alan Greenspan.With the appointment of Alan Greenspan to chairman, monetary policy in the United States changed from a monetarism view, an approach based on a constant growth in the money supply, to a mixed policy. With a mixed policy, inflation is monitored and controled via the iterest rate that banks charge, along with an understanding of unemployment and business cycles.Only a few days ago chairman Greenspan adressed congress and stated that the central bank would foreclose raising interest rates and gave little hint of when it might stop. This increase of the interest rate would tend to slow inflation as well as possably decrease labor be and increase productivity. The Federal reserve views labor costs as the most important source of inflation, both because labor costs amount to more than two-thirds of total costs and because they can feed a self-perpetuating spiral of higher prices and higher wage demands. So wat is the reason for the chairman of the Board of Governors to address congress? If the public is informed of the Federal reserves stance and commitment to lower or keep inflation in check we should depict lower wages and in turn lower prices.