Impact of Monetary Policy on Business

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To make businesses and the economy flourish, sometimes monetary policy is used.

This monetary policy is of great help to make sure that there would be other measures and means so that businesses will grow and our economy will be alive.

Almost any country in the whole world dreams of having economic growth. This has been the primary reason why the government has been doing a lot of things just for these things to happen. To make this happen, there is the so-called monetary policy for the full realization of the said goal.

  • What is monetary policy?

    Monetary policy is known as the policies that central bank has such as the Federal Reserve in getting to know the available money. When it comes to the tools that are used in monetary policy to make it work, we will see that interest rates are part of it.

  • Goals of monetary policy

    There are actually goals that monetary policies would like to achieve. Apparently, there are two things that we can take note of it. One of the goals of monetary policy that we can get is expansionary goal. When the monetary policies are basically used so that there would be an increase when it comes to the money’s total supply, then the monetary policies’ goal is said to be expansionary. One of the best examples that we can use is how the Central banks use such kind of goal by making sure that there is smaller interest rate to do away with unemployment and at the same time to increase the growth of the business.

    On the other hand, when a bank is reducing the amount of money or is one way or another slowing down the growth of the money available, then the goal attained by using monetary policies is contradictory.

  • Tools used for monetary policies

    For the reason of controlling the value of money and at the same time creating a prosperous as well as stable economy, central banks make use of different tools for such. One of the tools that are used in monetary policies is the interest rate. There are also reserve requirements, monetary base as well as discount window lending.

    However, the most important of these tools is the interest rates since it has the greatest effect when it comes to the economy and at the same time to different businesses. The logic is easy, when there is a decrease when it comes to the interest rate, then it would also be synonymous that the cost of borrowing money will follow the reduction. In fact, it would affect the economy tremendously even it is just a percent of it, it will lead to a great problem. More so, when this happens businesses will feel the big impact of it.

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