Lesson 55 of personal finance 

There are multiple laws, rules, and regulations affecting interest rates. Monetary policy is the policy I am writing about, and the way it affects our interest rates.the monetary policy is used to “control overall money supply and promote and achieve economic growth  growth” according to investopidia.com. It controls the money available in quantities and the quantities by which new money is supplied. The monetary policy affects the rate of inflation, economic statistics such as gross domestic product (GDP), and sector specific and industry growth. Expansionary and contractionary are different levels of monetary policies depending on growth and stagnation between policies. 

A contractionary policy decreases inflation and slows growth by limiting the outstanding money supply and increases interest rates. During the time when the contractionary policy is being used the prices of goods and services rise in the economy. The purchasing power of money is also reduced. This policy is used to temper inflation and reduce the levels of money circulating. The contractionary policy slows down the amount of inflation in the economy

The expansionary policy happens during the slowdown and/or recession time between the times when the contractionary policy is in use. When this happens the expansionary policy grows economic activity by lowering interest rates, consumer spending and borrowing increases and saving becomes less used. This policy fosters inflation and increases the amount of money circulating. Unemployment decreases during this time because intreates simulate business activities and explain the job market. The expansionary policy stimulates the receding economy.

The Federal Open Market Committee of the Federal Reserve meets eight times a year to discuss and determine changes to the monetary policy. The monetary policy employs tools used by central banks to keep the  national economy stable while limiting unemployment and inflation.


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