3 SEPARATE FORUM WEEKS 6
3Separate Forum Weeks
Week6: Objective of Monetary Policy
Monetarypolicy consists of the actions of central banks such as the FederalReserve of the United States, Currency Board or other RegulatoryCommittee that may have the mandate to determine the size as well asthe growth rate of the money supply, which in turn affects interestrates. The following are the basic objectives of monetary policy
Maintaining Stable Exchange Rate
Monetarypolicy tries to get rid of those forces that bring instability in theexchange rates. Unstable exchange rates may lead to an unfavorablebalance of payments. Monetary policy maintains a stable exchange ratethrough expansion and contraction of currency (Khan et al., 2003).
Maintaining Stable Prices
Monetarypolicy maintains stable prices by controlling inflation in a country.Controlled supply of money in an economy helps in controlling pricestability (Khan et al., 2003). Stable prices repose public assurancebecause cyclical fluctuations are eliminated. Therefore, there willbe increased business activities, and equitable distribution ofwealth and income as a result of stable prices.
Monetarypolicy aims at reducing the rate of unemployment in a country throughstable prices and stable exchange rates in a country. Also, monetarypolicy can promote employment by putting in place policies thatincrease the amount of money in an economy. Furthermore, promotinginvestments in a country will create more job opportunities.
Thecause-effect chain through which the monetary policy is madeeffective mainly operates through investments, equilibrium GDP,aggregate demand, money supply, commercial bank reserve, and interestrates. The chain helps in controlling inflation and creating more jobopportunities (Khan et al., 2003).
Strengthsof Monetary Policy
Themonetary policy has different strengths. One of the strengths entailsthe ability to determine the economic growth. The monetary policy canbe used to influence the growth of the economy since it impacts thevaluation of currency. Another strength is that monetary policy candetermine the amount of money in supply in an economy, whichdetermines the interest rates at which people access loans. Also, itworks well in inflationary gaps and individuals involved in decidingwhat is to be done are specialists, who do not have electivepositions (Khan et al., 2003).
Week7: Limits to Long-term Economic Growth
Long-termeconomic growth is the exceptional measure of the nation’s abilityto press forward its material living standard. The limits to the U.Slong-term economic growth are market failures, energy limits,increasing population, limited resources, rigid economic and socialpolicies, and inadequate physical and human capital. Market failurein the U.S is due to the use of inappropriate technology in someindustries thus, production of low-quality goods (Mankiw, 2009).Increasing population has increased the burden of transfer paymentssuch as transfer income and retirement schemes in the U.S. Inaddition, limited resources are a major limitation towards therealization of long-term economic growth. The resources available arenot sufficient to cater for the increasing population in the UnitedStates. Also, lack of adequate physical and human capital hindersrealization of long-term economic growth. Availability of bothskilled and non-skilled labor is an essential factor in economicgrowth since labor and capital are factors of production. Thegovernment can address the issue of these limits of realization oflong-term economic growth through the implementation of an economicand social policy that supports social infrastructures to encouragethe production of goods and services (Pyka & Andersen, 2013).Moreover, the government can put in place measures that can controlrapid population growth so that limited resources will not bestretched a lot. Furthermore, the government can invest in theaccumulation of physical capital by issuing low-interest loans andgiving grants. Alternatively, training individuals will help inincreasing human capital (Mankiw, 2009). In fighting the issue ofenergy limits, the government can invest in and explore alternativesources of energy such as wind energy and solar energy.
Week8: Course Reflection
Economicprinciple refers to the interrelations among economic factors thatexplain what may happen under specific circumstances. I have learnedabout the relationship between the rate of inflation (pricestability) and the amount of money in circulation in the economy.This economic principle has helped me in understanding themacroeconomic issue of inflation, and how monetary policies can beused in maintaining stable prices. I now have the knowledge of thecauses of inflation, and the measures that should be put in place tocontrol inflation. Monetary policies such as increasing minimum bankreserve requirements and selling of government bonds can be appliedin controlling inflation in a macroeconomic environment. Also, Ilearned that monetary policy works well in inflationary gaps andindividuals involved in deciding what is to be done are specialists,who do not have elective positions. This is an importantmacroeconomic lesson since it helps to research whether otherpolicies are determined by individuals in elective positions.
Furthermore,I learned that there were factors that can limit a country fromachieving its long-term economic growth. For example, U.S is limitedby the rapid population, limited energy, limited resources, andinadequate physical and human capital. I learned that these factorswere down-pulling the U.S economy in her efforts towards realizingbetter living standards for her people. With the knowledge of thefactors that hinder a country from realizing its long-term economicgrowth, I can apply this knowledge in a macroeconomic environment toadvise the government on the policies that should be adopted in orderto realize long-term economic growth. I would advocate for policiessuch as population control, exploration of alternative sources ofenergy, as well as investing in both physical and human capital.
Khan,M. S., IMF Institute., & International Monetary Fund. (2003).Currentissues in the design and conduct of monetary policy.Washington, D.C.: International Monetary Fund.
Pyka,A., & Andersen, E. S. (2013). Longterm economic development: Demand, finance, organization, policy andinnovation in a Schumpeterian perspective.Berlin: Springer.
Mankiw,N. G. (2009). Principlesof economics.Mason, OH: South-Western Cengage Learning.