Economics Essay Example for Free

Economics Essay The study of construction, allocation, and expenditure of goods and services has been incorporated in the social science that has been referred as Economics. In the year 1932, one of the economists Lionel Robbins presented a definition of economics that has been appreciated by a number of economic organizations around the globe. Under this definition, the ends and limited means create a connection with each other, which has been observed as a human behavior. Such behavior is studied by a branch of science that has been referred as economics. A notion has been accepted by almost all the economists around the world that the wants and needs of humans cannot be satisfied by the available resources that are scarce as compared with the needs of the human race. However, available resources can be used alternatively, which can result in the reduction and elimination of economic problems. In this regard, when the different choices available to human race for the fulfillment of the wants and demands are studied, the process has been recognized as economics. In addition, various types have been created during the classification of economics, which are as follows: Microeconomics and Macroeconomics †¢ Constructive economics and Normative economics †¢ Conventional economics and Unorthodox economics Our society entails different processes, actors, and relationships that work together for the proper functioning of the economic system, in order to create equilibrium in the demand and supply of the products and services around the globe. Nowadays, religion, politics, law, education, sociology, etc. have incorporated the economic analysis in its fields too, which has changed the perspective of role of economics in present world. Economy As earlier mentioned in the paper, the diverse processes of production, substitution, distribution, and utilization of goods and services results in the conception of a comprehended system of human activities, that has been referred as economy of a particular country or region. In addition, a number of factors are responsible for the composition of economy in a particular country. In this regard, some of the related factors are the scientific advancement that has changed the perspective of an economy. Nowadays, social organizations with respect to geography and ecology have integrated the utilization of economic policies and theories in its activities. In terms of products and services, the progress of a particular country is represented by its economy, which is indicated by its gross domestic product, rate of unemployment, inflation, and several other factors that are associated with the economy. (Parkin, 2004) Greek were the first ones to integrate the word economy in their daily household activities. In economic perspective, the management of economic affairs was referred as economy in the year 1440. Until the nineteenth or twentieth century, concept of a separate economic system of a particular country was not developed, as it is used currently in most parts of the world. Macroeconomics When the study of performance, structure, and behavior of economy and economical factors is considered on a national or regional level, such study has been referred as macroeconomics. The study of macroeconomics has been considered one of the major studies in terms of understanding the economy of a country along with microeconomics that considers the study of similar factors, but on an individual scale. As earlier mentioned, different economy-related functions, such as unemployment rates, GDP, price inflation, etc. are studied aggregately by the macroeconomists. (Wilson, 2003) Moreover, the abovementioned factors create relationships that are explained by the development of different models by the macroeconomists. Some of the detailed factors that are analyzed by the macroeconomists other than usual factors like GDP, unemployment rate, etc. are the international finance, international trade, consumption, national output, etc. On the contrary, the actions and activities of individual persons are primarily focused by the microeconomics. Some of the examples of considered individuals are firms, consumers, etc. (Bofinger, 2001) While there is a broad range of studies in the branch of macroeconomics, the discipline has been represented by two major areas of research. These two areas are quite contrary to each other, as one considers the short-run fluctuations in the national income, and endeavors to understand and analyze the different causes and consequences of the same. On the other hand, the second area has considered the study of economic growth based on long-run fluctuations. In this regard, macroeconomics plays a vital and crucial role in facilitating governments, as well as, large companies to understand the economic flexibility for the investors, as well as, for the different forecasts that result in the fluctuations of the exchange market. Policies In order to stabilize the economy of a county, different economic policies are considered by the government that are implemented and adjusted according to the requirements of a country. By the successful implementation of such policies, different economic shocks like the great depression, inflation, deficit budget, etc. are avoided and reduced by the government. It has been believed by most of the governments that economic stability and growth is continued and maintained by the successful adjustments of these policies. In this regard, two types of strategic policies have been observed for the economic management of a country. The two types of such policies are fiscal policy and the monetary policy. In this paper, we will try to define, discuss, and analyze the role of monetary policy in the economic growth and stability of a country. Moreover, we will try to determine the effects of monetary policy on the different macroeconomic factors that have already been mentioned in the paper. Monetary Policy Since the beginning of economic system in the United States, the monetary policy has played a vital role and crucial role in the sustained growth of economic factors in the country. In the past, gold and tobacco were considered as some of the valuable assets for the barter trade. Subsequently, technological evolution resulted in the value of debit and credit cards that are now being used in different parts of the globe. It has been observed that different sectors associated with human lives have developed with the help of effective policies in the United States. In the past, paper currencies were introduced in the country by the Continental Congress, which was quite an innovative step in the advancement of the monetary system of the country. Moreover, coinage was also introduced in the country by the policymakers that modified the perspective of economic system of the United States. (Clapham, 2007) As earlier mentioned in the paper that significant improvement and advancement has been shown by the monetary system of the United States, which has been possible due to the endeavors of different policymakers responsible for the creation of effective monetary policy in the country. However, the historical facts have shown that the creation of monetary policies has confronted a number of controversies during the early years that used to portray the monetary system as a decentralized system. On the other hand, the monetary system of the United States has now present itself as a more centralized system with some of the very effective monetary policies of all the time. Moreover, some of the other factors are responsible for the slow development of economic system is the specifications of banking power that created many doubts due to monetary policies that used to present a decentralized perspective of the system. Specifically, federal government has played a critical role in the reduction and elimination of abovementioned doubts and confrontations that has lead to the sustained growth of the monetary system of the United States. (Rabin, 2002) Alternatively, the beginning years of the economic system of the United States have been contributed prominently by the critical and vital role of gold. However, the policymakers of monetary policy are giving less significance to the gold assets that used to be one of the major components of the monetary policy in the country. Specifically, the non-existence of gold in the exchange market has resulted in the reduction of its importance. In the previous decades, gold was used as a medium of exchange that has been taken by the credit cards and paper money. In this regard, the functioning of gold in the creation of monetary policies has altered at a greater extent due to the modern and complex economy in the country. In the earlier economic years of the United States, economists were very confused and perplexed in the decision-making related to the creation of different economic policies in the country. At this moment, the framers of the U. S. Constitution played a significant role in the reduction of this confusion. However, some of the framers resulted in arguments that provided little difficulties to these framers. It was observed that the federal government was preferred as the deserving candidate for the monitoring of fiscal and monetary policies, as well as, their implementation in the economic system of the country. Therefore, creation of a centralized system with the abovementioned authority to the federal government was preferred by most of the economists. In this regard, the policymakers considered the creation of a national currency, as well as, a chartered bank that may be the authoritative body for the distribution of such currency in different states of the country. On the other hand, the creation of monetary policy and development of an effective monetary system was slowed down due to some members of policymakers that supported a decentralized monetary system including the provision of powers to individual states in the country. During this period, a wave of argument and rejection was flowed in the country that tensed the situation. However, the majority of the economists and policymakers advocated the Federal government as the only authoritative body for the issuance of paper money in the country, as well as, the only monitoring body related to the implementation of fiscal and monetary policies in the country. (Walsh, 2003) During the Revolutionary War, the mainstream of the policymakers opposed the utilization and supply of paper money in the country. One of the reasons of such arguments was the awful experiences during this war that were confronted by the government. Subsequently, this argument accelerated into higher distress to the government during the year 1775, as the war expenses were out of the reach of government’s budget. In addition, the obstructions by the British forces added the difficulties and limited the alternative ways of controlling the economic condition of the country. In the result, a modification in the monetary policy resulted in the step of Continental Congress that issued around two million dollars of Continental currency in different parts of the country. In detail, more than two hundred million dollars of such currency was issued by the Congress in the short period of only twelve years. (Brue, 2005) During this period, the holders of the abovementioned currency were assured that exchange of gold or silver will be appropriately arranged by the government. However, the government assets were not equipped with such high amount of gold reserves, which resulted in the adverse effects on the economy of the country. (Ursprung, 2004) In the result, the colonies confronted high rate of inflation due to the lack of planning of the Congress during the issuance of the currency. Consequently, destabilization of the economy was observed in the country, and abrupt reduction was observed in the currency. During this phase, situation of uncertainty in the currency was facilitated by the policymakers that advised the declaration of notification of crime, when the exchange of Continental currency was refused by any individual or bank in the country. Subsequently, the policymakers came to a decision that preferred the establishment of Bank of the United States. Once again, some of the policymakers and economists argued the authority of the Congress in terms of allowing the creation of a chartered bank or the issuance and supply of paper money in the country. In the result, the concept of creation of chartered banks took a long time, as long debates were observed in this respect. Conversely, the supply of national currency by the chartered bank of the Federal government was proposed by one of the prominent economists and policy makers, Alexander Hamilton. In the end, Justice John Marhsall declared the legal establishment of the Second Bank of the United States. (Dickinson, 2002) In the year 1913, the Federal Reserve System was established that increased the effectiveness of role of the monetary policies in the country. The reserve banks in different states of the United States were monitored by the abovementioned system. In the result, the Federal Reserve was able to maintain the supply of elastic money in the country. The changing economic conditions of the country created a comparative relationship with the money that has been one of the reasons of its referral as elastic money. In the year 1914, gold certificates, as well as, gold reserves were utilized during the World War I that consequently reduced the value of gold in the country. However, still, many banks in different parts of the globe facilitate international transactions in an effective manner due to the utilization of gold reserves and assets. (Wessels, 2006) As earlier discussed in the paper, gold has not been largely involved in the creation of modern monetary policy in the country. In the year 1968, promise of repayment in gold was cancelled by the United States, which resulted in the controlling of money supply by the Federal Reserve, which was responsible for the creation and adjustments of monetary policy in the country. Relevant measures of money supply have been a usual part of economic debates. Nowadays, money supply has become easy and convenient due to the different options of savings account, credit cards, etc. Moreover, monetary policymakers have provided the opportunities of mutual funds, term deposits, etc. in the broader money supply in the country. Still, implementation and different effects of monetary policy on the macroeconomic factors are considered by the policymakers. It has been observed that considerable effectiveness has been shown by the introduction of restrictive monetary policy. On the other hand, an economic downturn, as well as, reduction in the inflation was observed due to the implementation of monetary brakes during the high inflation period in the 1980s. Therefore, different components of monetary policy play a crucial role in the growth and stability of the economy. In addition, the activities of domestic, as well as, foreign investors are the result of effective monetary policy in the country. Currently, the effective implementation of different monetary policies has played a vital role in the accomplishment of a healthy economic system in the United States. It was discussed in the paper that the policymakers of monetary policy confronted a number of difficulties during the creation of a centralized monetary system in the country. In the past, the paper discussed that gold and silver played a crucial role in the different economic transactions and creation of monetary policies. However, the money supply and the incorporation of central banking has resulted in the low unemployment rate, high gross domestic product, which has created an effective monetary system and continued monetary development in the country. Conclusively, the paper has discussed and analyzed the historical evolution of monetary system of the United States effectively.