Macroeconomic Impact on Business Operations
Being a Chairman of the Federal Reserve can be a frustrating and difficult job. Especially when attempting to balance the economy with unforeseen occurrences in the market. Good practices that may have once established a healthy economic gain may not always be best suited for all situations. All risks and aspects must be considered and placed into the equation before deciding what is needed to stimulate and keep a system running.
A few of the tools used by the Federal Reserve are Discount Rates (DR) and Federal Fund Rates (FFR) in what is referred to as a spread between the Discount Rates and Federal Funds Rates. Banks borrow money from the Federal if or when the Discount Rates are lower than the Federal Fund Rates being charged by other banks. At any given time banks can and will borrow from other banks or from the Federal Reserve; when this is done, the money reserved is increased and the spread between FFR and DR will be positive (University of Phoenix, 2008); also when the spread between the DR and the FFR increase the DR will decrease.
Other tools are the Required Reserve Ration (RRR), which is the deposit that a bank holds on reserve either within their own vault or with the Fed; this amount is mandated by the Federal Reserve. When the RRR or the holding of a bank are increased, the money that is available in the system decreases (University of Phoenix, 2008). Another tool would be the Open Market Operations (OMO), which can be T-bills, bonds and other instruments designed by the Federal Reserve for investment purposes; these are also known as securities (McConnell, & Brue, 2004, p. 268).
Money is created or growth in the economy can occur when resources within an economy are increased or productivity within the creation of the resources is increased (McConnell, & Brue, 2004, p. 132). In simpler terms, the money that is collected is provided as loans back out into the market to others, being charged interest...