To: Member of congress, JEC Member.
From: Team Member Name
Date: May 3, 2016
Subject: Economic situation in the country.
Economics is a study that describes factors of production, distribution, and consumption of goods and services. These can be in a family, business or societal setting. The ever-presence of scarcity necessitates economics as a fact of life. Resources used for production are e.g. land, raw materials and labor are very crucial in the manufacture of goods and services the country needs, but they exist in low supply. Economics try to solve this challenge.
Economics addresses the problem of scarcity through advice on choices to make. Countries have to make the decision on whether to spend its income on military or medical care for its citizens. Cities normally have to decide whether to allocate more funds for police and fire department or into the education system. Mostly there`s never enough funds in the budget to buy everything we need.
There is two division of economics. These are Microeconomics and Macroeconomics. Macroeconomics is a branch of economics that studies individuals and business firms in their decision making in regards to allocating the available resources. Microeconomics is also responsible for considering impacts on changes in national economic policies e.g. Taxation. Macroeconomics, on the other hand, deals with the whole economy. It specifically targets inflation, growth, and unemployment, price levels, National income, gross domestic product and changes in employment.
Macroeconomics has two broad fields that it tries to understand. One involves understanding the short-term consequences of fluctuations in national income, business cycle. The other area is where it seeks to understand the factors that determine the long-term increase in national income leading to economic growth in the long-term. Government involvement in both forms of economics is vital. The government uses agencies such as Federal Reserve (FED) to come up with policies that ensure both short-term and long-term economic growth.
The Federal Reserve Board is a governing body of the Federal Reserve System. It oversees Federal Reserve Banks and helps implement monetary policies of the United States. Janet Yellen currently chairs it since 2014. Monetary policies are the actions of a Central Bank and other regulatory authorities that influence the size and growth rate of the money supply. Once these policies have been formulated the Federal Reserve implements them by primarily performing operations that affect interest rates in the short term.
To achieve this, Federal Reserve can use any of the three mechanisms to manipulate the money supply.
- Buy or sell treasury securities (bill and bonds). Selling securities reduce money in circulation and vice versa.
- The board can also change the discount rate.
iii. The board can also change the reserve requirement hence affecting the money multiplier. This is not done frequently. It was lastly done in 1992.
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Bouman, J. (2011). Principles of Microeconomics-free fully comprehensive Principles of Microeconomics and Macroeconomics texts. Columbia, Maryland.
Forder, J. (2001). Some methodological issues in the statutory characterisation of central banks.
Meltzer, A. H. (2009). A History of the Federal Reserve (Volume II, Book 2, 1970-1986).
Panovas, I. (2012). Lithuanian Economy in 2011-2020: Forecast of Main Macroeconomic Parameters as a Tool to Consider Sustainable Development of Health Financing. Intelektine Ekonomika, 6(2).