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It is crucial to understand how the Federal Reserve affects the country’s economy and why its approach is not apparent to the public. Monetary policy can be defined as the official regulation of market operations based on the analysis of the most recent economic developments (Mankiw, 2018). It represents the influence of governmental structures on the stability of markets and the value of money. While these regulations often play a restrictive role, they can efficiently prevent crises that could have been disastrous. Monetary policy can be explained as a way for the government to instill changes in the behavior of customers and banks in an attempt to shift the supply curve towards a balanced state. Through this method, the Federal Reserve can act on the predictions of its analysts with great precision and defend the United States’ interests in the global market.
The impact of a monetary policy is not always apparent, yet it can be seen through the examples of its possible influences. For example, a new directive can be issued to prevent a crisis due to banks’ actions. In case when there is a sudden spike in demand on the market, people may attempt to borrow money from banks in hopes of capitalizing on that opportunity. A monetary policy that raises the interest rates of such loans can be enacted as a means to counteract this event, making borrowing a less viable option for the majority of people. Otherwise, dollars become less valuable, as their buying power would have been brought down. In conclusion, monetary policies keep the country’s economy in a state of relative balance by preventing shifts in prices that would be unfavorable for the majority of people.
Reference
Mankiw, N. G. (2018). Principles of macroeconomics (8th ed.). Cengage Learning.
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