Premium Essay

Open Market Operation

In: Business and Management

Submitted By kimb6406
Words 1525
Pages 7
Part I.

1. The three monetary policy tools are: Open Market Operations, Discount Rate Changes and

Reserve Requirement Ratio. Interest rates affect monetary policies by raising or lowering a short-term interest rate called the federal funds rate. Monetary policy can also use expansionary activities; these activities can increase the total supply of money, purchase open market securities, lower the discount rate and decrease the reserve requirement. Central banks can use this activity to decrease unemployment through lower interest rates designed to increase business growth. Contractual activities are also used by the Fed, monetary policy reduces the amount of money or slows the growth of available money, they increase open market sales of securities, increase the discount rate and increase the reserve requirement ratio. Through these tools that Fed uses they are able to increase or decrease economic activity and stabilize the economy.

2. See excel

Part II.

1. Changes in monetary policy have reduced business spending for all of small businesses and most large corporations. These businesses have seen reduced income and reduced sales, which causes in a reduction in spending to other small and large companies. I have really witnessed no change in the way I spend because I am in the lower part of the income bracket. I do not take in spendable income so I haven’t noticed a reduction in spending. However, I have noticed that prices with certain commodities have fallen and have been made more affordable.

2. In my opinion, no the federal government did not do a good job saving the economy. After reviewing the Fed statements it has become clear to me that the Fed saw this problem coming a mile away and did the bear minimum to ensure the financial stability of the country. They noted inflation was high and growth was next to nothing, the housing and…...

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