Current US monetary policy
The Federal Reserve is a body in charge of the US monetary policy. The United States controls its economy by using monetary policy. For instance, if much money is supplied to circulate, inflation rates will increase, and consequently, if little money is left to circulate, economic growth may stagger. The Federal Reserve is thus used to control a constant inflation rate of about 2% to 3%.
Impact of monetary policy on the economy
The Federal Reserve implements the monetary policy by way of raising or lowering real interest rates. The real interest rates affect the general public demand for goods and services through altering the borrowing rates, availability of loans from banks, and foreign exchange rates. Therefore, lower real rates encourage economic growth while higher real rates may deter the growth of the economy.
Economic growth
Economic growth refers to the incremental change in a country’s potential in producing goods and services over a given timeframe. It is measured in terms of per capita income and the gross domestic product of a country. An increase in per capita income yields intensive growth while an increase in gross domestic is termed as extensive growth. Indicators of economic growth conform to the four distinct factors that determine production. These four factors of production generally include; labor, land, and entrepreneurship.
How economic growth is achieved
Economic growth is achieved through increasing the ability prerequisite for the production of goods and services. This is done by increasing the quality and quantity of the economy’s factors of production. These are land, labor, capital, and entrepreneurship. Population growth, technological innovations as well as and intensive investment can help attain economic growth.
Institutions and policies that promote economic growth
The four major policies that can be implemented to enhance economic growth include raising the education standards of citizens, enhancing social stability, increasing incentives, and embracing global economic integration.