Textbook Notes (369,141)
United States (206,213)
Economics (193)
ECON 351 (21)
Chapter 15

Chapter 15_Monetary Policy.docx

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ECON 351
Frank Sorokach

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Chapter 15: Monetary Policy  The Goals of Monetary Policy – The Fed has set six monetary policy goals that are intended to promote a well-function economy: 1. Price Stability – most industrial economies have set price stability to avoid inflation 2. High Employment – under the best economic conditions, some frictional and structural unemployment remain because monetary policy are ineffective in reducing these type of unemployment but the Fed attempts to reduce cyclical unemployment associated with business cycle recessions 3. Economic Growth – an increase in the economy's output of goods and services over time 4. Stability of Financial Markets and Institutions – if Fed makes not efficient in matching savers and borrowers then economy loses its resources 5. Interest Rate Stability – stabilizing interest rates can help to stabilize the financial system 6. Foreign-Exchange Market Stability – stability in the foreign-exchange value of the dollar simplifies planning for commercial and financial transaction  Four Types of Unemployment 1. Frictional Unemployment – when a company refrains from hiring because it believes there are not enough qualified individuals available for the job, when in actuality there is. 2. Structural unemployment – caused by changes in the structure of the economy such as a shift in manufacturing techniques, and increased use of computers, increases in production of service instead of goods. - For Example: Hundreds of thousands of well-paying manufacturing jobs have been lost in the U.S. over the past three decades, as production jobs have migrated to lower-cost jurisdictions in China and elsewhere. 3. Cyclical Unemployment –Afactor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle - EX: Businesses are not having enough demand for labor to employ all those who are looking for work. The lack of employer demand comes from a lack of spen
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