Business Investors Essay Example | Topics and Well Written Essays - 500 words

Business Investors - Essay ExampleThe aim is actually to create a residue of money in circulation i-e bringing money supply and demand in equilibrium to accomplish bloodline growth and economic stability. Secondly, Fed changes the Reserve ratio which means the percentage of commercial bank perplex liabilities required as reserves. And third is the change of discount appraise which is the interest rate the Fed charges on loans to banks and thrifts. (McConnell and Brue, 2002)Fed uses a tight monetary policy when an rescue observes inflation (increasing trend in prices). present I assume that it is a demand-pull inflation which means that Aggregate demand is excessive relative to the economys full employment level of real widening. It is actually the spending that has resulted in inflation. Fed consequently reduces the money supply by open-market purchases, increase the reserves ration and the discount rates. Banks will in go stop issuing new loans as old loans are paid back. H igher interest rate discourages investment, reduce join demand and refrain this inflationary trend.A typical business cycle has quadruplet stages which include peak, recession, trough and economic recovery. A Peak is observed when the economy reaches a temporary uttermost point. Here, the economy is at full employment level and the output is at or very hand-to-hand to economys capacity. Then, the peak is followed by an economic decline called as Recession. The total output produced, trade, prices, employment and income generated by an economy contracts and it observes a negative growth. The next stage is known as arena where output and employment reaches a temporary minimum. The Fed in order to cope with this pip introduces an easy monetary policy which aims to increase money supply by pumping more money in the economy, lower reserves ration and discount rates. Investment is encouraged because of reduction in interest rates, aggregate demand increases and