Monetary Policy

In the United States, the Federal Reserve system is charged with implementing monetary policy (Investopedia, 2013). Monetary policy is essentially any the output of any central bank that seeks to manage an economy by means of manipulating the supply of money in the economy (Investopedia, 2013). The Federal Reserve (2013) defines monetary policy as what it does to "influence the amount of money and credit in the U.S. economy." Thus, monetary policy affects not only the quantity of money but the cost of money and these factors directly affect the broader market with respect to investment, manufacturing output and overall economic activity.

The Federal Reserve uses monetary policy for three main purposes. The first is to management the GDP, the second is to manage inflation and the third is to manage unemployment. The Fed seeks to strike a balance between these three objectives with its policy, and the...
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