ment of monetary policy. aggregate demand for products made by US companies reach such a variety of ways, leads to the fact that firms begin to increase production volumes and the number of workers. This increases their need to expand production capacity and, hence, promotes the growth of cost of inputs. Rising incomes, resulting from increasing production, in turn, leads to increased consumption. of changes in monetary policy are usually long term, and the duration of their impact on the economy may be different. The main effect provided by these changes, the overall increase in the production of goods and services, usually manifests itself during the period it takes from 3 months to 2 years. And the effect of changes in monetary policy on inflation is significantly during more prolonged periods of between one to three years and even longer. , It is very difficult any pinpoint the period during which changes n monetary policy will affect the economy, because such changes are intended to influence the demand and, consequently, their influence depends on the reaction of people, which is volatile and difficult to predict. In particular, the effect is provided by measures of monetary policy on the economy, depends on the opinions of Americans about how the actions taken by the Fed, will affect the rate of inflation in the future. br/>
.2 The Implementation of Monetary Policy
Federal Reserve exercises considerable control over the demand for and supply of balances that depository institutions hold at the Reserve Banks. In so doing, it influences the federal funds rate and, ultimately, employment, output, and prices. Federal Reserve implements US monetary policy by affecting conditions in the market for balances that depository institutions hold at the Federal Reserve Banks. The operating objectives or targets that it has used to effect desired conditions in this market have varied over the years. At one time, the FOMC sought to achieve a specific quantity of balances, but now it sets a target for the interest rate at which those balances are traded between depository institutions-the federal funds rate. By conducting open market operations, imposing reserve requirements, permitting depository institutions to hold contractual clearing balances, and extending credit through its discount window facility, the Federal Reserve exercises considerable control over the demand for and supply of Federal Reserve balances and the federal funds rate. Through its control of the federal funds rate, the Federal Reserve is able to foster financial and monetary conditions consistent with its monetary policy objectives. The Federal Reserve influences the economy through the market for balances that depository institutions maintain in their accounts at Federal Reserve Banks. Depository institutions make and receive payments on behalf of their customers or themselves in these a...
