order paper  
more phones
Academic writing services  
Custom written essay Book report Research paper Dissertation Resume and CV Editing and proofreading  
main menu
By ordering custom paper you get
  • 24/7 Support
  • Over 100 professional US Writers
  • 300 words per page
  • Flexible discount system
  • FREE revision (within 2 days)
  • Anti-Plagiarism Software Check
we accept
sample essays
Accounting Essays
Admission Essays
Analysis Essays
Art Essays
Biography Essays
Biology Essays
Book Review Essays
Business Essays
Case Studies Essays
Cause and Effect Essays
Character Analysis Essays
Communication Essays
Communication and Media Essays
Compute Technologies Essays
Consideration Essays
Controversial Essays
Description Essays
Economics Essays
Education Essays
Evaluation Essays
Explanation Essays
History Essays
Job Essays
Law Essays
Management Essays
Medicine Essays
Music Essays
Personal Essays
Personal Experience Essays
Persuasive Essays
Persuasive Speech Essays
Philosophy Essays
Political science Essays
Politics Essays
Proposal Essays
Psychology Essays
Reflective Essays
Religion Essays
Research Essays
Response Essays
School Essays
Science Essays
Sociology Essays
Technology Essays
World Literature Essays
Monetary Policy essay
← The Influence of GlobalizationWhat are the Main Functions of a Bank? →

Monetary Policy. Custom Monetary Policy Essay Writing Service || Monetary Policy Essay samples, help

Monetary policy involves how the monetary authority controls the money supply through targeting interest rates in order to promote economic stability, and growth. The main goals of monetary policy include stabilizing prices and maintaining low levels of unemployment. It includes two policies namely; expansionary policy and contractionary policy. Expansionary policy is where the supply of money in an economy becomes increased rapidly in order to combat     recession and unemployment, through lowered interest rates. Contractionary policy, on the other hand, includes expansion of money supply slowly with an intention of lowering down inflation.

In the United States, monetary policy gets implemented by the Federal Reserve, established in 1913. It comprises of twelve independent and private banks. The banking corporations are all accountable to the Congress. Federal Reserve manipulates the supply of money through three mechanisms. First, it sells securities from the treasury in order to reduce the monetary base. This happens because accepting securities means paying a hard currency. The other mechanism is changing the discount rate. The final mechanism involves adjustment of reserve requirement, which affects money multiplier. However, this rarely happens.

 Interest rates get influenced by the Federal Reserve by use of open market operations to change the reserve balances. A target of federal funds rate gets announced regularly by the Open Market Committee. These provide the rates by which inter banking lending takes place. The capacity of Federal Reserve to change lending rates is unlimited. The rates, however, stay within a certain range, below and above the target rate. In a closed economy, interest rates go down whenever there is an increase in money supply. In such a situation, consumers and businesses have low capital cost, and can thus improve spending on capital projects, which encourages growth (short term). However, interest rates go up whenever the supply of money falls. This leads to low investment and spending (Clapham, 2007). 

Central Bank

Central bank provides funding to the economy through funding the commercial banks to cover a shortage in money supply. Central bank is, therefore, the backbone of a country’s banking system. Central bank’s primary role is providing a country’s currency and price stability through controlling inflation. Central bank is also a regulatory authority in monetary policy. The bank is also the printer and provider of coins and notes, which are in circulation. In order to perform these functions effectively, central bank must remain independent from political, and government influence. Central bank should also not have an interest in commercial banking.

Central bank has got two main functions namely; macroeconomic and microeconomic functions. Macroeconomic functions come in when the central bank regulates price stability, and inflation. Microeconomic function is when the bank becomes the lender of last resort. The central bank regulates inflation through controlling the supply of money. This happens through contractionary and expansionary policies. In order to increase the money in circulation, the central bank decreases the rates of interest. The central bank can also buy government bonds, and bills. This, however, increases the rate of inflation in a country. When it becomes necessary to reduce inflation, the central bank sells government bonds in an open market. Consequently, this leads to increased interest rates, which discourages borrowing. Open market operations help the central government to control the money supply, inflation, and stability of prices.

Central bank influences microeconomics by lending to the commercial banks, which lend to consumers, and businesses. In case commercial banks do not have enough funds to lend to their clients, they borrow money from the central bank. This maintains stability in an economy. Reserves by commercial banks remain held by the central bank, but the case is different in UK. The central bank also determines the discount rate, the rate at which commercial banks borrow short-term funds.   

Adverse selection and moral hazard

Adverse selection is a situation where the seller values an item highly than the buyer because he understands the value of that good. This leads to a situation where the seller will not be willing to part with the good at a price lower than the value he attaches to the good. On the other hand, the buyer will not be willing to buy the item at that price because he does not know the exact value of that good. The buyer fears that the good could be of a lower value. This prevents a transaction from taking place.

 Moral hazard occurs on services such as warranties and insurance. Here, the one who buys the insurance cover may become careless because of the insurance cover. He knows that in case damages occur the insurance company will pay all or part of the loss. The problem, in this case, is not prior information, but the fact that the insurance provider cannot control and monitor the behavior of the insured. This leads to market failure just as in case of adverse selection. In adverse selection, the person who possesses much information is the seller, but in case of moral hazard, the buyer has much control.

Some situations exist where adverse selection relates to moral hazard. An excellent example here would be health insurance cover. The person covered person may engage in unhealthy activities, which are attractive to him but not to the insurance company. This would be adverse selection because the insured has more information than the insurance provider. With the insurance cover, the person may become careless about his health by smoking and drinking heavily, which expose him to health problems. This is moral hazard. Adverse selection occurs in a situation like where the buyer is purchasing a second hand vehicle. He may not be able to know the exact value of the vehicle without purchasing it first (Froeb & McCann, 2009).  

Monetary Policy. Custom Monetary Policy Essay Writing Service || Monetary Policy Essay samples, help

Order Now
Order nowhesitating

Related essays

  1. What are the Main Functions of a Bank?
  2. Beige Book
  3. The Influence of Globalization
  4. Investments

order now

Order now
why choose us
96% of satisfied returning customers
24/7 customer support
A wide range of services
Up-to-date sources
100% privacy guaranteed
MA/PhD writers
Custom written papers only
Free plagiarism report
Free revision (within 2 days)
Free extras by your request
Direct communication with a writer
Are your writers qualified for the custom writing?
How quick can my order be accomplished?
Is it legal to buy custom essays, term papers or book reports from your company?
Are essays offered by your company truly custom-written?
Is it safe to buy from SupremeEssays.com?
How secure is the payment system of your company?
Can I submit custom essays or term papers done by your company as my own?
How can I contact your company if I've got problems with my ordered paper?

Finally, I've found the real custom writing service . My grades are saying "Thank you, it's been a pleasure to work with you."

Jamal, South Africa

I can't believe you finished my essay under such a short deadline! You saved me from a disaster once again. You guys deliver exactly what you promise. I'll be back. That's for sure!

William H , Kansas, US

contact us
Toll free for US & Canada only. International callers are charged for outgoing calls.

Our phone numbers:
Toll free 1(877)801-5587
Call now 1(702)418-3797
SupremeEssays.com provides custom term paper writing/rewriting services inclusive of research material for assistance purposes only. The term papers should be used with proper reference and are not meant to replace actual assignments.

Get 15% off your first custom essay order

Order now

from $12.99/PAGE