Macroeconomic Impact on Business Operations

Macroeconomic Impact on Business Operations

  • Submitted By: bluscreen7
  • Date Submitted: 10/24/2008 7:32 AM
  • Category: Business
  • Words: 1335
  • Page: 6
  • Views: 3

{text:bookmark-start} Macroeconomic Impact on Business Operations {text:bookmark-end} Monetary Policy is one of the tools that the United States Government uses to influence the economy. The Government uses its monetary authority to manage the supply and accessibility of money. In addition, the Government attempts to influence the general level of economic movement in line with political objectives. The overall goal of monetary policy is “macroeconomic stability” which is low unemployment, low inflation, economic growth, and a balance of external payments. Monetary policy is generally administered by a Government selected “Central Bank.” According to McConnell and Brue, “such policy consists of deliberate changes in the money supply to influence interest rates and thus the total level of spending in the economy,” (McConnell & Brue, 2004, p. 268). Tools used by the Federal Reserve The Central Bank (nicknamed the “Fed”) attempts to achieve economic stability by varying the quantity of money in distribution, the cost and availability of credit, and the makeup of a country's national debt. The Central Bank has three tools used to modify reserves of commercial banks available in order to execute monetary policy: open market operations, reserve requirements and the discount window. Open market operations are the buying or selling of Government bonds by the Central Bank in the open market. If the Central Bank were to buy bonds, the effect would be to increase the money supply and lower interest rates; the opposite would be true if bonds are sold. This is the most commonly used instrument in the operational control of the money supply due to the ease of use, and the relatively smooth relation on the economy as a whole. Lastly, the Discount Rate is where the commercial banks, and other depository institutions, are able to borrow reserves from the Central Bank at a discount rate. This rate is usually set below short term market rates (T-bills). This enables the...

Similar Essays