Essay: Monetary Management

Sample Essay – Monetary Management 

Words 897

This is an essay on monetary management. Discuss as many “principles” of good monetary management applied or violated by the players in this episode that you can find.

a) Discuss as many “principles” of good monetary management applied or violated by the players in this episode that you can find.

The new policy of Fed presented in 1979 contained three main things:

• A one percentage point increase in the discount rate; that attracted to those thought the circumstances called for another conventional approach as theorized by the monetarist.
• A marginal reserve requirement on managed liabilities of large s; that interested to those who were interested in taking steps to control the surge in  loans.
• A new reserve-based operating procedure.

the third process which seemed the most insignificant and very vague was the real change made in the policy of the Fed. This put more emphasis on day to day operations and the interest rates would depend on the supply of b-ank reserve requirement as the reserve had gone up. In addition it effectively stopped controlling the short term fluctuations of the federal fund rates.  The Fed instead of controlling interest rates, used a different plan which centered on the money supply, the new target was controlling the quantity of money in the economy rather than its price.

The Federal Reserve was correct to turn its consideration straight to the fundamental inflation crisis in the U.S.economy rather than trying to nurse its effects or complaining about them.

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