Businesses Throughout the World

Macroeconomic Impact on Business Operations

Sierra A. L. Holly

University of Phoenix

Introduction

Throughout this paper, I will discuss the different tools that are used to control the money supply. The three tools used are open-market operations, reserve ratio, and discount rate. The tools influence the macroeconomic factors and the money supply. I will also discuss how money is created and the monetary policy and the ways to achieve a well balance between economic growth, low inflation, and rate of unemployment.

Monetary Tools

The Federal Reserve have three main tools are used for the control over the money supply. The money supply consists of the actual total of currency plus the deposits. These tools can also effect the growth of the economic, rate change of inflation, the employment level, and the exchange rate.

The amount of money in the economy is adjusted through the open-market operations especially in selling and purchasing of the U. S. Treasury bonds that are being issued daily. The Federal open-market committee decided on one objective for the open-market operations, in which, it could be quantity of reserve and federal funds rates. The interest rates in which the different banks lends money at the Federal Reserve overnight is federal funds rates. “If the Federal Reserve believes that the economy increasing, it will raise the interest rates and bring the supply of money down to the equilibrium level.” The Federal Reserve also believes the economic growth causes less inflation and deflation, it reduces the interest rates. Individuals have a tendency to receive loans when the interest rates are lower. People start different businesses along with purchasing vehicles, etc. When the interest rate is lower it influences people to withdraw their money from the banks. The open-market operations are considered the main tool that the Federal Reserve uses because of the bonds are sold daily.

The Federal Reserve controls the reserve ratio, in which,...