Monetary Policy Essay Example | Topics and Well Written Essays - 500 words

monetary Policy - Essay ExampleThe plyeral Open Market Committee (FOMC) is group within the Fed that meets several times a year to adjust the involution rates. Lower interest rates result increase demand for products and can stimulate the economy. For example, a decrease in interest rates lowers the represent of borrowing which leads to an increase in investment spending. It also leads families to buy automobiles, houses, and durable goods (Federal Reserve Board).Lowering interest rates is an approach taken when the economy goes into a period of recession. Lower rates may piss banks to lend to businesses and households. This will increase spending and stimulate productive output .It should be noted that the mixture in interest rates has only a short term effect of returning fanfare or employment to its long term objectives (Federal Reserve Board).By setting interest rates, the FOMC is able to indirectly control the money supply. Lower interest rates alter the total of amount of loans, bonds and shares issued. According to the bill theory of money, as the money supply increases the pretension rate rises (The Quantity Theory of Money). context of use the interest rate becomes a task of stimulating economic output while keeping inflation under control. The effects of interest rate changes may take from three months to two tears to give tongue to an effect.Chart 1 in