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

Business Investors - Essay ExampleThe aim is actually to create a balance of currency in circulation i-e bringing bills supply and demand in equilibrium to accomplish business growth and economic stability. Secondly, provide changes the Reserve ratio which gist the percentage of commercial bank deposit liabilities required as reserves. And third is the change of discount rate which is the interest rate the ply charges on loans to banks and thrifts. (McConnell and Brue, 2002)Fed uses a tight monetary policy when an economy observes inflation (increasing trend in prices). Here I assume that it is a demand-pull inflation which means that fuse demand is excessive relative to the economys full usage level of real production. It is actually the spending that has resulted in inflation. Fed then reduces the money supply by open-market purchases, increase the reserves ration and the discount rates. Banks will in turn stop issuing new loans as old loans be paid back. Higher interest r ate discourages investment, reduce aggregate demand and refrain this inflationary trend.A typical business cycle has four stages which overwhelm peak, recession, trough and economic recovery. A Peak is observed when the economy reaches a temporary maximum point. Here, the economy is at full employment level and the output is at or very closer 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 Trough where output and employment reaches a temporary minimum. The Fed in order to cope with this situation introduces an easy monetary policy which aims to increase money supply by pumping more money in the economy, put down reserves ration and discount rates. Investment is encouraged because of reduction in interest rates, aggregate demand increases and