Macroeconomics

Topics: Monetary policy, Inflation, Central bank Pages: 4 (1186 words) Published: April 16, 2014
Introduction
Key points:
The Federal Reserve, U.S. central bank had make their decision to continue on with buying treasury and mortgage bonds with the new money through the policy of quantitative easing. They chose not to taper because the unemployment rate has reduced. Moreover, according to the federal census, the real household incomes in America did not fall any further. Hence, quantitative easing has been quite good for increasing employment and boosting the household wealth in US (The Economist, 2013). Justification of Topic:

This topic is chosen because it shows how the US Central Bank deal with their recession by using quantitative easing, which is closely related to monetary policy and how it affects the aggregate demand and aggregate supply. By using Economic Analysis:

Monetary Policy: Objectives and Framework
Central bank is a national bank that controls the quantity of money and banking services for its country’s government and commercial banks. Their responsibility is to stabilize currency, control inflation and maximize employment. (Investopedia, 2009) To achieve these goals, central banks uses three main policy tools, which is liquidity reserves ratio, open market operations government securities and also last resort loans. Monetary Policy: Expansionary Monetary Policy

Fed uses expansionary monetary policy like quantitative easing to curb recession. Quantitative easing is a monetary policy whereby a Central Bank injects more money into the economy by purchasing government or mortgages bonds with the new money that they have created (Economics Online, 2013). Open Market Operations (OMO) is the purchase or sale of government securities by the central bank from or to a commercial bank or the public. Hence, when Fed runs out of options, they will use quantitative easing to boost the economy by increasing money supply into the market (politics.co.uk, 2012). When Fed buys more bonds through quantitative easing, it injects more money into the...

References: Economics Online (2013) Quantitative easing. Available from: http://www.economicsonline.co.uk/Global_economics/Quantitative_easing.html [Accessed: 21 Oct 2013].
Investopedia (2009) Central Bank Definition | Investopedia. Available from: http://www.investopedia.com/terms/c/centralbank.asp [Accessed: 21 Oct 2013].
Investopedia (2009) Aggregate Supply & Aggregate Demand - CFA Level 1 | Investopedia. Available from: http://www.investopedia.com/exam-guide/cfa-level-1/macroeconomics/aggregate-supply-demand.asp [Accessed: 21 Oct 2013].
Milliken, F. (2013) Lexington Libertarian: Spelling It Out: Income Inequality Caused By Quantitative Easing. Available from: http://lexingtonlibertarian.blogspot.com/2013/09/spellin-it-out-income-equality-casued.html [Accessed: 21 Oct 2013].
politics.co.uk (2012) Quantitative easing. Available from: http://www.politics.co.uk/reference/quantitative-easing [Accessed: 21 Oct 2013].
The Economist (2013) Taper tiger. Available from: http://www.economist.com/news/finance-and-economics/21586562-federal-reserve-surprises-everyone-changing-nothing-taper-tiger [Accessed: 21 Oct 2013].
Ukessays.com (2013) Quantitative Easing In The United States Economics Essay. Available from: http://www.ukessays.com/essays/economics/quantitative-easing-in-the-united-states-economics-essay.php [Accessed: 21 Oct 2013].
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