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03/18/2011 09:04 AM
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MacroecOnomic Impact On Business operatiOn

Macroeconomic Impact on Business Operations

MBA 501: Forces Influencing Business in the 21st Century

Macroeconomic Impact on Business Operation
      This paper will review the macroeconomic impact in business operation. In reason to understand what role the money supply plays in the economy, the tools that are used by the Federal Reserve have to be identified, also the conception of how the money is created and finally the monetary policy that will help to balance the economic growth, low inflation and reasonable rate of unemployment.
What are the tools used by the Federal Reserve to control the money supply?
    The tools that the Federal Reserve uses to control the money supply are: Open Market Operations, Require Reserve Ratio and Discount Rate.
          Open Market Operation: “Bond markets are “open” to all buyers and sellers of corporate and government bonds (securities). The Fed’s open-market operations consist of the buying of government bonds from, or the selling of government bonds to, commercial banks and the general public. Open-market operations are the Fed’s most important instrument for influencing the money supply.” (McConnel-Brue, 2004 p.270). In the Open Market Operations the Fed’s use Treasury bills, Treasury notes and Treasury bonds, the different factor between this three are the length of their maturity. This instrument will create money and once it is added into the system it will help to increase the Gross Domestic Product and decrease the unemployment rate. Inflation is always a factor has to be watched.
          Required Reserve Ratio: Is the percentage of the deposit that any bank holds, this ratio is mandated by the Fed’s, and can be increased or decreased. “Required reserves are an amount of
funds equal to a specified percentage of the bank’s own deposit liabilities. A bank must keep these reserves on deposit with the Federal Reserve Bank in its district or as cash in the bank’s vault. To simplify, we…

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