When analyzing these policies, include some discussion of the following points w

Question

When analyzing these policies, include some discussion of the following points when appropriate: What is the purpose of the policy? Why is the policy necessary? The welfare of consumers, producers, and society (the winners and losers) before and after the policy The distribution of costs and benefits Does government intervention improve the situation?
Course Objectives Tested:
1. Explain key microeconomic terminology.
2. Differentiate between microeconomics and macroeconomics.
3. Create and use economic graphs and numerical models to analyze and solve microeconomic problems.
4. Explain the costs and benefits of international trade, including calculation of gains from trade.
5. Analyze the impact of government activity in markets.
6. Determine optimal consumer buying decisions in the context of utility theory.
7. Compare and contrast optimal pricing and output decisions in various market structures.
8. Apply supply and demand theory to both product and factor markets.

Explanation / Answer

Monetary policy is the process by which the government, central bank, or monetary authority of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy.[1] Monetary theory provides insight into how to craft optimal monetary policy. Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy should be contrasted with fiscal policy, which refers to government borrowing, spending and taxation

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