Unit 5

Author

Name of university

Abstract

The outcome of the list of the most powerful people in 2009 is an indicator that the banks are responsible for the control of the economy. Any economy needs to have structure between different forms of authority. The forms of authority in this case are the government, the legislature and the senate. These three parties complement each other in that one cannot survive without another. The three however cannot function without the funding from the banks. The central bank has been put in place to control the activities of three making it key to the management of the country. One of the responsibilities of the central bank is to regulate the circulation of money in the country. This task is not only considered economic but also affects the country’s political environment.

Unit 5

People in charge of controlling the activities of the central bank are fall under the category of the most influential due to their ability to change the interest rates to suit the performance of the country. The banks are responsible for the storage of the countries assets whether in liquidity form or tangible assets. The bank not only stores money but has in their possession assets such as gold and other valuable goods. The release of these items to the population determines the political and economic decisions to make. The world leaders are thus reliant on projections of the banking officials making them subjects to the decisions of people in such positions (International Monetary Fund, 2011).

2008 was a difficult time for all economies due to the inception of the recession. The recession saw the rising of prices which in turn affected the cost of life. This issue was caused by the banks which offered loans with unrealistically low prices. A large majority of the population opted for the loans making them liable to the banks. The banks in turn were forced to foreclose a large percentage of the homes due to the lack of payments brought about by high interest rates. High interest rates are not ideal for the development of the country because they promote debt amongst the economy. Banks place high interest rates so as to receive a high return when loans are paid. The inability of a large number of people to pay the interest led to the increase in unemployment which affected the economy negatively. Banks worldwide had to collaborate so as to reduce the interests in all the banks. When the interest rates are reduced, people are allowed to invest at cheaper rates. This step was ideal for the reconstruction of the economies making banks a major authority in the management of the countries (Schmidt, Shelley, Bardes & Ford, 2012).

The United States monetary policy contains rules and regulations required for the proper exchange of money from one agent to another. This involves the supply of money to the public at certain intervals and at a particular rate. The policy changes according to the intended growth of the economy in the given financial year. The move by the banks to reduce the interest rates has improved the situation of the country (Brigham & Houston, 2012).

A few changes are however required to reduce the cost of living and encourage investment. My ideal monetary policy would involve the reduction of the supply so as to control the rate of inflation. This reduction should however be kept to a minimum so that the economy can continue to grow at a steady rate. This will regulate the distribution of money and control the sustainability of the country’s economy countries (Schmidt, Shelley, Bardes & Ford, 2012).

References

Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Mason, OH: South-Western Cenage Learning.

International Monetary Fund. (2011). Tensions from the two-speed recovery: Unemployment, commodities, and capital flows. Washington, DC: Internat. Monetary Fund.

Schmidt, S. W., Shelley, M. C., Bardes, B. A., & Ford, L. E. (2012). American government and politics today, 2011-2012. Boston, MA: Wadsworth, Cengage Learning.