Monetary policy, established by the federal government, affects unemployment by setting inflation rates and influencing demand for and production of goods and services. Additionally, having stable prices and high demand for products encourages firms to hire workers, which reduces rates of unemployment. In the United States, the Federal Reserve holds responsibility for instituting a national monetary policy. Sometimes, such as during economic downturns, the Federal Reserve asserts its control by implementing long-term and short-term measures to stimulate economic production.Continue Reading
The Federal Reserve controls economic situations concerning the private and public spheres. Traditionally, it accomplishes economic control by controlling the federal funds rate, which is the rate that lending institutions charge one another for short-term loans. Short-term investment rates ultimately influence borrowing rates, which refers to money borrowed by purchasers and consumers of goods and products. The short-term investment rates influence longer-term rates as well.
In both short-term and long-term scenarios, firms and consumers look for low interest rates, which allows them to make investments. Low interest rates result in lower borrowing rates, which enables investors and firms to borrow money and repay loans in the future. The increased activity of borrowing in turn raises demand for market goods, which triggers companies to hire workers. Workers benefit from higher wages and job security as companies can afford to hire them and will retain them to continue meeting consumer demands.Learn more about Economics
Monetary policy can either be expansionary or contractionary. The former occurs when the central banking system of a country, such as the Federal Reserve in the United States, increases the money supply and lowers interest rates, while the latter occurs when it decreases the money supply and raises interest rates.Full Answer >
Monopolies have a negative effect on the entire economy by making it harder for consumers to purchase goods, a trend that leads to lower production in the system. High prices do not affect only the consumer, they end up hurting the monopoly itself. Even systems with more than one competitor can be monopolistic if there are only a few. Competition benefits every human component in the economy.Full Answer >
A planned or command economy is one in which major functions, such as production and distribution of goods, are controlled by the government. In a planned economy, the government owns some or all production facilities and decides what to produce and how goods are priced. This is in contrast to a market economy, where production and distribution are decided by market forces with little or no government intervention.Full Answer >
Alfred Marshall wrote the book “Principles of Economics,” which emphasized that the price and production of goods is determined by both supply and demand. Marshall contributed many original ideas to the study of economics, including his analysis of consumer surplus, price elasticity, diminishing returns and marginal utility.Full Answer >