ECO 372 Week 4 Learning Team Assignment Weekly Reflection
ECO 372 Week 4 Learning Team Assignment Weekly Reflection
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Date Created: 11/06/15
Running Head WEEK 3 REFLECTION Week 3 Re ection ECO372 Principal of Macroeconomics WEEK 3 REFLECTION 2 Week 3 Re ection One of the topics covered this week was the independence of the Fed and whether its policies should be monitored and more power given to other governmental agencies to decide what to do and what policies to impose The role f the Fed is to create policies and help stabilize the economy for example to give money to banks to help them out of any financial crisis Colander 2010 Understanding the idea of how the Fed works and how government works the independence of the Fed is essential because many of the decision need to be made quickly and the time it takes for many governmental agencies to create policy will not suffice The idea that the Fed does have too much power is true but at this time the independence of the Fed is essential to the success of the economy and until someone comes up with a better idea the Fed needs to keep its independence There are two monetary policy strategies that are used by the Federal Reserve to combat the threat of in ation expansionary and contractionary Expansionary monetary policy is effective to control in ation because it will grow and act as a stimulant to the economy whereas Contractionary monetary policy is the exact opposite and works by attempting to shrink and slow the economy Both have been used and proven over the years that the two types of monetary policies can be successful depending on the economic climate It is important for the Fed to understand and know when each monetary policy to use that would provide the economy with the most stability This week our study material covered the two main policies used by the Federal Reserve when there are circumstances that threaten or hinder the economy in some way The first policy is a contractionary monetary policy where the government will reduce the monetary supply WEEK 3 REFLECTION 3 which in turn limits spending and will decrease in ation The contractionary monetary policy is usually used when the economy is booming and the government wants to fight the rapid rise in in ation The second policy is the expansionary monetary policy where the government increases the monetary supply which will lower interest rates and increase in ation The expansionary monetary policy is generally used when the economy is in a recession or even a depression and the government needs to implement a policy to help jump start the economy by increasing the monetary supply as well as spending This week we also covered when the Federal Reserve is the net seller and net buyer of government bonds and how this will affect the economy This week there was quite of bit of information on the Governmental policies Also the money topic within banks The uses for money are simple an individual can save the money to create a nest egg Otherwise an abundant amount of wealth or they can use the money to purchase everyday living items such as groceries or what have them The monetary policy is set forth that the feds are the only ones to control value Whether it is a loan or just plane old interest rates Yet the feds are given a specific guideline by the way the economy is running If it is smooth then no lowering of the interest rates if it is rough they lower rates to make the economy run smoother The way money is created is by society when I deposit 100 dollars in the bank I make a certain amount of interest to have my money in that bank The bank will turn around and loan out that money and charge a higher interest rate in a loan Then after paying me they profit the rest This is the method to creating money with not actually making it Why it is so important to keep the monetary policy independent is if there are two many hands in the cookie jar the jar will become empty WEEK 3 REFLECTION 4 Other areas were the monetary policies and how the Federal Reserve would implement them The difference of each policy Contractionary and Expansionary monetary policy is the aim towards the Interest Expansionary reduces the interest rates while raising the aggregate demand Contraction does just the opposite it increases interest rates therefore lowering aggregate demand If there were a depression the monetary policy would be Expansionary the feds would lover the interest rate and increase money supply This would consistently help in the efforts to turn the economy around For a recession the monetary policy would be the same Expansionary to help boost the economy Now for a robust economy the monetary policy would be contractionary intern will help the economy be stable and strong To raise interest rates and lowering money supply The policy that is appropriate now would be expansionary this will assist in the revamping of the economy With all that has been taught this week it was tough but a sense of gratification from what I have learned This week s readings helped to explain the concepts behind the monetary policies There have been portions of the readings that were somewhat confusing but in reading the chapters again and making notes of aspects that were not clear as helped to research some of the aspects further Basically the weeks reading explained the concepts behind the shifts of the demand and supply curves For instance aggregated supply and demand shift either to the left or the right based on the expansionary or contractionary policies For example the expansionary policy increases the money supply decreasing interest rates and raising demand However the contractionary method has a different affect It decreases the money supply raising interest rates therefore decreasing demand In both cases the methods are controlled by the Federal Reserve which makes decisions based to increase or decrease the money supply based on the WEEK 3 REFLECTION current economies infrastructure It has been interesting reading and has enabled a further understanding to the policies affecting the economy This week s readings also provided detail on how the actual buying and selling of bonds by the Fed affects the banks through use of government IOU s Colander 2010 and how those IOU s become more or less money It is important to know that When the Fed buys bonds it is using its expansionary monetary policy that increases the money supply and decreases interest rates When the Fed sells bonds it is using its contractionary monetary policy Which decreases the money supply and increases interest rates WEEK 3 REFLECTION References Colander D C 2010 Macroeconomics 8th ed Boston MA MCGraw H lIrwin
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