Question

Analyze new monetary policy actions undertaken by the U.S. government throughout the 1990-1999 by describing their intended effects, using macroeconomic principles to explain the actions.

Answer 1

• Monetary policy is a macroeconomic policy undertaken by a government . This mainly includes management of money supply and interest rate . This policy is used by countries in order to attain macroeconomic objectives like inflation,consumption,liquidity and growth .
• In US federal reserve is in charge of taking new monetary policies .
• The federal reserves 3 instruments of monetary policy are open market operations,discount rate,and reserve requirements
  • OPEN MARKET OPERATIONS:This is used to influence the supply of bank reserves . This carried out by Domestic Trading Desk of the Federal Reserve Bank of New York under the guidance of FOMC . If Fed wants to increase the reserve,it will buy the securities and pay them by depositing in to the account, which is maintained at Fed by primary Dealer's Bank . If it wants to decrease the reserve,it will sell the securities and collects from those accounts .
  • Discount rate:This is the interest rate imposed by Fed on loans which are given for short term period to deposited institutions .
  • Reserve Requirements:These are a portion of bank's deposit ,which should be maintained in their vaults or on deposit at a Federal Reserve Bank