Business Communication

Running Head: BUSINESS COMMUNICATION

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Business Communication

Introduction

The Federal Reserve System is a very essential aspect of the economy of the United States. This reserve was established by an act of the congress – Federal Reserve act to control and manages the periods of economic crises and monetary panic that faces the US. The monetary policy of the US is managed by this body’s board of governors. , the board has three basic instruments to run the monetary policy; reserve requirements, free market operations and discount rates. When there is too much money supply, the cost of borrowing is raised and the economy is slowed down.

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The Monetary Policy

The monetary policy is very difficult to implement and its been a problem to the US treasury and the Federal Reserve board for a while now. However there are three main controls as identified that enable their job to be easier; Monetary Supply, the federal funds rate and employing credit, (Mishkin 2007)

Functions of the Federal Reserve

The most critical and evident function of the Federal Reserve system is controlling inflation rates without eliciting a recession. Additionally, the Federal Reserve has other function not so observable (Wells 2004);

Through the above functions, the Federal Reserve ensures that it carries out the monetary policy of the government abs assist in maintaining employment, regulate prices of commodities and maintain relatively low interest rates (Mayer 1999). It supervises and regulates the banking institution ensuring that people feel secure to keep their money and that consumer credit rights are protected. Financial services are also made available to the US government, and all banks as well as performing a key duty of clearing checks, money distribution, saving and loan associations, dispensation of electronic disbursement, credit unions and savings bank. The feral reserve also carries out investigations on US and regional economies; disseminate data about economy via speeches, seminars, publications on other media including websites (Mishkin 2007).

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Previous Inflation Trends

Controlling Inflation

In the capacity of a central bank, the Federal Reserve lends money to vast majority of private banks. By this, it gains power to control the economy by ensuring the money it lends is expensive (increase interest rates) or make it cheap (lower interest rates). Expansionary money policy is setting low interest rates – economy grows faster (Wells 2004). If the growth is too fast, it elicits inflation. Continuing inflation is like a dangerous cancer that devastates every advantages of development. Consequently, the Federal Reserve has to ensure that the rates are kept high just enough to prevent inflation (Mayer 1999). The Federal Reserve has been under a battle of management by the Austrian school of thought and Keynesian way. Since its establishment, the Keynesian have been managing it (Ireland 2000).

Recommendations and Conclusions

Though the US is known to be a supporter of the capitalist economist type of approach of many deals, The Keynesian economic approach has saved it from lots of trouble in economic polices over the past years when the aggregate spending fell lower than the national income. During the periods of very high inflation when the consumers cannot afford to buy products, the standard that the government increases its expenditure works. For instance the great depression incidence, the government increased expenditure on projects like public works and created jobs as well. When more people earn, this is likely to incline towards (consumption) expenditure and eventually investments. The only mistake is when the government still implements these rules after the recession. Nonetheless, the Keynesian approach does not support increased governments expenditure when the aggregate spending is on expansion phase. Regardless of the economic school of thought a government believes will work, it’s imperative to know how the critical aspects of economy interact for instance, money supply, inflation, GDP, employment, private sector investment and government spending. This will be useful in making critical decision during the times of inflation or depression deflation and any other related financial and monetary crisis.

Business Communication

References

Ireland P.N. (2000). Interest Rates, Inflation, and Federal Reserve Policy Since 1980

Mayer T. (1999). Monetary Policy and the Great Inflation in the United States: The Federal Reserve and the Failure of Macroeconomic Policy, 1965-1979. Edward Edgar Publishers

Mishkin F.S (2007). The Economics of Money, Banking, and Financial Markets the Addison-Wesley Series in Economics. Pearson Addison Wesley

Wells D.R (2004). The Federal Reserve System – McFarland