StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

The Basic Concept of the State Monetary Policy - Term Paper Example

Cite this document
Summary
The paper "The Basic Concept of the State Monetary Policy" explains that interest rates effect on the rate of money supply turnover in the state monetary system. if needed to increase this mass to increase the population's purchasing power, the rates are being reduced, and vice versa.
 …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.1% of users find it useful
The Basic Concept of the State Monetary Policy
Read Text Preview

Extract of sample "The Basic Concept of the State Monetary Policy"

Download file to see previous pages

Lending money is the riskiest business because the future is never certain and continuously evolves and hence no one can see the future it is imperative that lenders get compensated for this uncertainty in the form of interest on the money that they are lending. Thirdly and lastly, the lender has to be compensated for the decrease in value of the money due to inflation, for example, a dozen eggs might cost 100rs today and after a year they might cost 110rs, so if I have loaned anyone 100rs I will want 110rs back because that is what 100rs is NOW worth or that is the equivalent value.

There are basically two theories that explain how interest rates are decided upon, one is the ‘Loanable Funds Theory’ also known as the classical theory and the other one is ‘Keynesian Theory’ also known as the liquidity preference theory. The loanable funds theory is the older one of the two theories and according to this theory the interest rates are determined by the demand for loanable funds by firms and the supply of these funds by the banking and other investment funds, it suggests that interest rates are determined in the same way as demand for other goods and services is determined i.e. by finding the equilibrium position of the demand and supply of the relative product.

Keynes pointed out to a whole new dimension with his liquidity preference theory, where he states that the demand and supply for money was not linked to current increases in capital and the saving levels of the economy but in his opinion, money should also be viewed as the ‘demand for money’ not in the sense that it needs to be spent but it needs to be held as an asset. These were the basics required to see what interest rates are and how they are determined and what makes them such a crucial element in the running of an economy on the whole.

Interest rates are a major tool of the monetary policy; monetary policy is basically the attempt to manipulate either the supply of money or the exchange rate to bring about the changes that are perceived by the state as the most favorable at a point in time.

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(The Basic Concept of the State Monetary Policy Term Paper, n.d.)
The Basic Concept of the State Monetary Policy Term Paper. Retrieved from https://studentshare.org/finance-accounting/1499156-interest-rates-essay
(The Basic Concept of the State Monetary Policy Term Paper)
The Basic Concept of the State Monetary Policy Term Paper. https://studentshare.org/finance-accounting/1499156-interest-rates-essay.
“The Basic Concept of the State Monetary Policy Term Paper”, n.d. https://studentshare.org/finance-accounting/1499156-interest-rates-essay.
  • Cited: 0 times

CHECK THESE SAMPLES OF The Basic Concept of the State Monetary Policy

Central Bank Independence and the Conduct of Monetary Policy

Central Bank Independence and the Conduct of monetary policy Table of Contents Table of Contents 2 1.... The Central Bank Independence & Framework of monetary policy 4 2.... Basic Concepts in monetary policy 4 2.... The Central Bank Independence & Framework of monetary policy In the earlier years, there have been certain absolute alterations made in the legislation of the central bank in order to boost the legal independence for the bank....
5 Pages (1250 words) Essay

USA and Europe Relationship

Through the long standing partnership the USA and Europe has generated a number of framework for transatlantic relation such as European security and defence policy (ESDP) and European common foreign and security policy (CFSP).... This northern continent is bordered by Canada to the east, Russia to the west and is host to state of Alaska to the Northwest (Dobson & Marsh, 2006).... and Europe has been a concept worth researching on especially after the end of the cold war....
9 Pages (2250 words) Essay

Creating Your Own Monetary Policy

monetary policy: monetary policy refers to a series of actions that the United States Federal reserve undertakes for purposes of influencing the availability of credit and cost of money, for purposes of promoting national economic growth.... hellip; The 1913 Federal Reserve Act allows the Federal Reserve to create a monetary policy.... There are three important tools of monetary policy, and they are, the reserve requirements, the discount rate, and the open market operations (Orphanides and Volker, 17)....
6 Pages (1500 words) Research Paper

Economic Factors Affecting Home Building Industry in the US

The conduct of monetary policy by the Federal Reserve has profound impacts on the housing sector and its contribution to the overall economy" as reducing inflationary... markets may not have sufficient housing supply to accommodate the influx of new residents, while the state and local governments may lack the resources to provide supportive services.... Housing is an important basic need and focus of social concern and should be viewed as one of the key elements of social policy....
8 Pages (2000 words) Essay

Monetary Policy (Finance)

The purpose of this study is to come out with factors that are generally considered by Fed while taking any decision on the monetary policy.... The analysis also deals with determining the economic factors that play a major role in establishing the monetary policy. … One of the most important responsibilities for the Fed is that of ensuring monetary stability in the economy, which can be achieved through a combination of stable prices of goods and services across the economy coupled with a low inflation level and level of confidence of the investors in the currency of the country....
4 Pages (1000 words) Essay

International Relations

The concept of reciprocity is fundamental to bilateralism.... This concept of reciprocity may be responsible for a great deal of inter-state co-operation or exchange, outside or in addition to any international legal obligations.... ules of international law cover almost every facet of inter-state activity and is a primary tool for the conduct of international trade.... he basis of international law is the concern of the rights and duties of the states Rules of international law cover almost every facet of inter-state activity (the use of the sea, outer space and Antarctica, international telecommunications, postal services, the carriage of goods and passengers by air and the transfer of money) and is a primary tool for the conduct of international trade....
9 Pages (2250 words) Essay

The Contemporaty Middle East is the class The paper is the development of Israel and Palestine

Owing to the past renowned debates regarding free trade among parties such as Adam and the renowned mercantilists who… ed to confining transnational trade, numerous contemporary economists have been demarcated with respect to the merits and demerits of the abolishment of economic precincts. Notably, the mercantilist grounds are one of the unique financial arguments in which there is a However, the wider aspect of the demarcations in monetary matters remains, to a magnanimous extent, an overt situation (Silverburg 16)....
9 Pages (2250 words) Essay

Social Policy and Welfare State Issues

This essay "Social policy and Welfare State Issues" discusses the concept 'welfare' and 'welfare state' tht are heard more often in speeches of today's politics, which provides them a reliable ground for gaining more and more electoral per cents of success.... nbsp;… Social policy is a very important sphere of governmental policy and it concerns itself with the provision of welfare services.... The UK social policy has experienced many significant changes over the decades since the end of World War II, and the correct way of its conducting is still one of the most debatable things....
6 Pages (1500 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us