Th fed-how it manages the economy and the federal open market committe Essay

Th fed-how it manages the economy and the federal open market committe - strain ExampleThe fed uses its fiscal policy to influence the availability and be of money and credit to economic aid promote national economic goals (Federalreserve. Gov). Among these licks the FOMC is responsible for the open market operations (buying and selling of government bonds to the market) function of the Fed. With the use of this tool through FOMC, the Fed manages the economy by balancing the balancing the interest set according to the economic objective of the government.In simple language, FOMC can help diffuse the economy by reducing the cost of money to business by lowering the interest range that would encourage them to expand their business operation which would in turn have a ripple effect of job creation, change magnitude domestic spending and higher tax collection. During an overheated expansion of the economy, monetary policy can in like manner be used to manage its ill effect whic h is usually inflation (too much money travel in the economy). This can be done by raising the interest evaluate or cost of borrowing which would constrict the money supply and therefore arrest inflation. This function mops out excessive liquidity in the market to abate the effect of an overheated economy by raising interest rates which would otherwise led to an overheated economy.During a crisis such as the recent financial crisis that begun slowly of 2008, monetary policy was used to increase money supply by lowering the interest rates to push for an expansionary economy and abate the effect of the crisis. In the 2008 crisis, the Fed pegged short-term interest rates to skillful zero and bought huge amounts of spacious-term Treasury debt and mortgages to push down long-term rates (Wessel). The objective of adopting this monetary policy through FOMC was (1) signal that the Fed would keep short-term rates low for a long time, (2) drive long-term consumer and business borrowing rates lower