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Category > Economics Posted 05 Jun 2017 My Price 6.00

The quantity of money in the economy

The quantity of money in the economy has a direct effect on two major components of GDP, consumption and investment. When people have more access to money (loanable funds), they will be able to consume more goods and services through borrowing and thus, the overall output of the economy increases. At the same time, when there is more money in the economy, interest rates decline. The decline in interest rates is good news for those who wish to borrow (remember, interest rates are the prices of borrowing), and bad for investors since interest rate for them are the return to investment in the financial market.

The federal government uses monetary policies to change the money supply (quantity) in the economy to achieve goals related to aggregate demand, price level (inflation), and employment. 

Discuss the goals of expansionary and contractionary monetary policies used by the federal government and the approaches (monetary policy tools) used to achieve each policy. Also, discuss the effect of each policy on GDP, price level, private investment (investment in capital acquisition by firms and housing by households) and net trade. Are there any risks involved in implementing monetary policies?

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SuperTutor
(15)
Status NEW Posted 05 Jun 2017 07:06 AM My Price 6.00

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