Hi there, i was wondering is there any mistake for my research paper. i want to thanks whoever giving me feedback. also in the first paragraph what other word can i use beside using "we" eg. the people live in a nation...
also is my conclusion good
We live in a nation where everyone wants to have a job of some sort; whether it is being a teacher, government's worker, chef or many other interesting jobs that is being offered here in the United States. We all want to be employ and not be consider unemployed. Everyone prefers to pay less and not pay more when they go out shopping, dine-out or even paying the mortgage. In this research paper, Monetary Policy can be the solution to influence the levels of inflation and reduce unemployment in the U.S economy.
What is Monetary Policy as define by Wikipedia? Monetary policy is the process by which the central bank or monetary authority manages the money supply to achieve specific goals - such as constraining inflation, achieving full employment or economic growth. Here in the United States Monetary policy is controlled by the Federal Reserve System also known as "the Fed" there is one Fed that I know of, which it is located in Downtown, Los Angeles. In principle, Federal Reserve policy makers can use three different tools to control the money supply and interest rates to reach it specific monetary policy goals that three different tools are: open market operation, the discount rate, and the reserve requirements to manipulate the money supply (Dua, 271).
In Open Market Operations, the Fed will usually buy and sells U.S. Treasury securities. When that happens, it affects the amount of moneys that the banks have available to make loan out to customer or business (Financial Pipeline Website). Remember bank keep only a small amount of money to make loan out. Let me give you some of my examples, let say if the Fed decided to buys Treasury Securities (Bond), banks will have more moneys to loan out because the Fed is putting more money into the banking system. Now let say, that if the Fed maybe decided to sell its Treasury Securities, bank will in return now have less money to loan out because many companies is buying the securities and withdrawing their money from the bank, in order to buy the Treasury securities. As a result, bank will have less money to loan out and probably it will charge higher interest rates to loan out to customer. Therefore, customer would not want to borrow money if interest rate is high, which then will bring down inflation because many people are not spending more.
The next tool is discount rate; discount rate refers to the amount of interest rate the Fed charges bank for borrowing their money (Amos, 32). Higher or lower rates affect the amount of excess reserve (money) that banks have available to make loans and create money (Amos, 32). Let say that if the Fed decided to lowers the discount rate(interest rate it charge bank), banks then in return will borrow more money from them and make more loans out to the people by charging the customers lower interest rates. Meaning people will spend more, which will lead to more employment for the economy because more people are needed to manufacture more goods and services. Now if the Fed decided to raises the discount rates, then maybe the banks will probably say "NO WAY" and not borrow any loan from the Fed. As a result, banks can borrow less money and make fewer loans out to people charging those people highest interest rates.
The last tool that the Fed can use is reserve requirement. The Fed can further adjust the proportion of reserves (money) that banks must keep to back outstanding deposits (Wikipedia website). Higher and lower rates affect the deposit multiplier and the amount of deposits banks can create with a given amount of reserves (Dua, 274). To make it easier to understand, let say when the required reserve ratio is raised, banks have not a lot reserves, causing them to try to replace those reserves. They do so by reducing the amount of loans, and the money supply falls. If the fed decided to lower the reserve requirements, then banks can use it existing reserves to make more loans which will lead to an increase in the money supply. The discount rate cannot be used to control the money supply with great precision, because its effects on banks' demand for reserves are uncertain. In practice, the Fed does not use the discount rate very often to control the money supply. It does change the discount rate from time to time, but this is to keep in line with other interest rates, which are usually leading the discount rate anyway (Adam, 120).
Out of the three tools that the Federal Reserve System, Open market operations are the Fed's preferred means of controlling the money supply for several reasons. First, they can be used with some accuracy. I also think that if the Fed needs to make small changes in the money supply, it just sells or purchases a small amount of securities. Second, open market operations are really flexible. If the Fed decides to reverse course, it can switch from buying to selling just that easily. Finally, the operations have a fairly predictable effect on the supply of money.
When there is high unemployment rate above it natural rate of unemployment (which is 5.5 percent), I believe inflation needs to increase by a bit, in order to raise the price of goods and services and allow more output to be produced. When unemployment rate is near full employment rate of 5.5 percent, the policy it should take on is to slow down the worker productively in order to slow down the output rates, and still remain at almost perfect condition of maximum employment. Raising inflation too much will cause many consumers not to spend their money on goods and services, therefore, sending the economy into recession.
Another issue or concern of the Federal Reserve is about "future inflation". People's expectations about "future inflation" may affect the policy for example, if monetary policy was straightforward then consumers and business people may ask for larger increases in wages and prices, which would cause inflation to increase without big changes in employment and output of production (Hayek, 67). The debate about the importance of money growth rates can easily be misunderstood (Gali, 17). It might appear that the debate is about whether money growth is or is not the key force for driving up inflation (Gali, 17). A country which experience inflation rate of 50% or 100% is also likely to see its money stock grow at about the same rate. High inflation can cause so many problems, for example, because the tax system isn't in agreement with inflation, high inflation without rhyme or reason helps and hurts different sectors of the economy.
In the end, monetary policy is what keeps the United States economy in good condition. With this policy, it allows the fed to control the money supply depending on the economic status of the nation. Therefore, this policy consists of just three tools that is the solution to control the levels of inflation and unemployment in the U.S economy.