Macroeconomic Impact on Business Operations

Essay by rlundayUniversity, Master's September 2010

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Macroeconomic Impact on Business Operations

University of Phoenix�

This paper will address the how the monetary policy has an impact on the factors of macroeconomics, such as gross domestic product (GDP), interest rates, inflation, and unemployment. According to the Federal Reserve, the Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. The Federal Reserve uses two means to drive macroeconomics, fiscal and monetary policy. This paper's focus will be on the concept of monetary policy and how business and society is affected as a whole due to these macroeconomic factors. This paper will address the tools used by the Federal Reserve Board of Governors to control the money supply, the control of bank reserves, and interest rates and how these tools are used to influence the money supply and the macroeconomic factors.

Also discussed in this paper are the effects of monetary policy on the economy and explaining how money is created. Finally, a recommendation of a monetary policy, discussing which combinations of monetary policy will help to best achieve a balance between economic growth, low inflation, and a reasonable rate of unemployment.


Macroeconomic Impact on Business Operations

Tools used to Control Money Supply

The responsibility of the Federal Reserve was to fix the monetary policy by a central bank, in order to influence the cost of money and its availability. The Federal Reserve (Fed) uses three tools to regulate the monetary policy; Open Market Operations, Discount Rate, and Required...