In a two- to three-page paper (not including title and references pages), answer the question “ How does monetary policy affect the macroeconomy ? ” In your answer, include the following:
- Explain the fundamentals behind why changes in the money supply have real effects on the economy and the monetary transmission mechanism.
- Explain how monetary policy can be used to effectively stabilize output and smooth business cycles.
- Evaluate the role of monetary policy and how it affects the macroeconomy given the implications of the financial accelerator.
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The monetary policy has an influence in the decisions the country makes about how much to save, borrow and even spend. The decisions that are usually made by the central banks through the monetary policy have powerful effects and impacts on the consumers and investors in businesses. The changes in the interest rates have both demand and supply side effects. The monetary policy main objective is to control the…
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