monetary policy with defination ,examples and graph

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David · Accepted Answer

Introduction to Monetary Policy 
Objectives of Monetary Policy 
The fundamental objective of monetary policy is to aid the economy in achieving full-employment 
output with stable prices (low inflation). 
To do this, the Fed changes the nation’s money supply. To change money supply, the Fed manipulates 
size of excess reserves held by banks (see chapter 15). 
The Fed has four tools to do this 
 Open Market Operations (OMO) 
 changing the discount rate (DR) 
 changing the required reserve ratio (RR) 
term auction facility (similar to the DR) 
Monetary policy has a very powerful impact on the economy, and the Chairman of the Fed’s Board of 
Governors, formerly Alan Greenspan, currently Ben Bernanke, is sometimes called the second most 
powerful person in the U.S. (I assume they believe the US president is the most powerful.) 
The Market for Money: Interaction of Money Supply and Demand 
Now lets add the MS (money supply) graph from chapter 14. The graph below and textbook's Key Graph 
16.1c illustrates the money market. It combines demand with supply of money. 
If the quantity demanded exceeds the quantity supplied,

monetary policy with defination ,examples and graph

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