Essay on Opposing Views of the Effectiveness of Monetary...

Opposing Views of the Effectiveness of Monetary Policy Monetary policy is a powerful governmental weapon which has historically proven that it is difficult to wield. This difficulty is one of the reasons why some economists doubt the effectiveness of monetary policy as a whole. These economists find that monetary policy is difficult to implement because of estimation problems and time lag problems, as well as cyclic effects. They also point out situations in which monetary policy may not work at all. On the other hand, some economists swear by monetary policy as one of the most influential economic tools. These economists show that controlling money supply in America is a relatively young idea, and is developing rapidly. They†¦show more content†¦Had the Fed raised the money supply during the depression perhaps more banks would be able to survive, unemployment would drop, and the U.S. would pull itself out of the depression much sooner and quicker than it had. The failure to act was probably due to the immaturity of monet ary policy at the time, and perhaps learning from the past is the best we can do. There is still, however, the fact that it takes great estimation skills to use monetary policy effectively, and this provides doubt for the effectiveness of the Fed’s actions concerning money supply. There is also a time lag associated with monetary policy. The fed had raised the discount rate too late in order to slow down the stock market boom of 1929. The ill timed raise of the discount rate did contract the money supply; however, it did so during the stock market crash, making the entire situation a whole lot worse. This time lag in the policy’s effect helps to magnify the estimation problem. [1] http://www.shambhala.org/business/goldocean/causdep.html [2] Mishkin, F.S. [3] http://www.korpios.org/resurgent/Fed.htm [4] http://www.korpios.org/resurgent/Fed.htm Besides the estimation and time lag problems associated with monetary policy, there a cyclic effect which takes place when changing the discount rate to change money supply. By lowering the discount rate banks will borrow moreShow MoreRelatedThe Alleviation of Poverty Essay1600 Words   |  7 Pagessuch as ours, are achieved through the dual use of fiscal and monetary policy. The essay will give a brief description of both policies as well as the manner in which they theoretically operate when attempting to achieve their goals. A look at the current policies currently being used in the country and their success will be assessed in comparison with the policy aims. Lastly, a look at whether the current fiscal and monetary policies being used are actually achieving their goals and the reasonsRead MoreMeg Guild . Mr.Bare . Economics . 31 April 2017. 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