Facebook Pixel Code
x
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.

Central Bank: The Monetary Base Essay Example

Show related essays

Central Bank: The Monetary Base

This is a preview of the 20-page document
Read full text

The monetary base is determined by the value of the currency in the hands of the people living in the country and also by the amounts of monetary reserves at the central bank as the deposit of all government banks to the central bank. And the amounts of the money supply is determined in the economy by the central bank by the monetary base and also by the amounts of loans disbursed by the central bank and all government banks of the economy. The role of the central bank in the money supply process is to price stability through appropriate changes in the amounts of the money supply through the changes in the amounts of the rate of interests and thus the amount of money in circulation in the economy. The central bank lowers (increases) the rate of interest in the money markets to give greater (lower) amounts of loans to the people and investors in the economy. This increases (reduces) the amount of money in circulation in the economy and thus increases (reduces) the amount of money supply in the economy. Hence, changes in the market rate of interest are important tools of monetary control used by the central bank. Apart from this tool, the central can also raise the rate of interest on loans which are given to the commercial banks and thus reduce the amount of money supply in the economy by reducing the number of deposits to the commercial banks. Also, the central bank can increase the rate of interest which it pays to the commercial banks when it takes loans from those commercial banks. In this way, the central bank can raise the number of bank deposits, thus amounts of loans and hence, the amount of money supply in the economy (Mankiw, 2011). One of the most important roles of the central bank is to maintain the stability of prices of goods and services which are produced and/or sold in the economy. There are different techniques which are used by the central bank in regard to management of price and financial stability within any economic structure.

This is a preview of the 20-page document
Open full text

References

:

Banchs, A. G. and Mollejas, L. M. (2007), International monetary asymmetries and the central bank, Journal of Post Keynesian Economics, Vol. 32, No. 3, pp. 467-496

Bernanke, B., (1983), Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression, American Economic review, Vol. 73, pp. 257 – 276, retrieved on April 17, 2012 from http://fraser.stlouisfed.org/docs/meltzer/bernon83.pdf

Bernanke, B., and Blinder, A., (1988), Credit, Money, and Aggregate Demand, American Economic Review, Vol. 78, pp. 435 – 439, retrieved on April 17, 2012 from http://www.econ.puc-rio.br/mgarcia/Macro%20II%20-%20Mestrado/BernankeBlinder.pdf

Bindseil, U. (2004), Monetary Policy Implementation: Theory, Past, and Present, UK: OUP

Blanchard, R. (2007), Macroeconomics, USA: Pearson Education

Fisher, I., (1933), The Debt-Deflation Theory of Great Depressions, Econometrica, Vol. 1, pp. 337-357, retrieved on April 17, 2012 from http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

Glocker, C and Towbin, P. (2012), Reserve Requirements for Price and Financial Stability: When Are They Effective?, International Journal of Central Banking, retrieved on April 17, 2012 from http://www.ijcb.org/journal/ijcb12q1a4.pdf

Hasek, C. W. and Dodd, J. H. (1952), Economics: Principles and Applications, USA: Goodwill Trading Co., Inc.

Jadhav, N. (2006), Monetary Policy, Financial Stability, and Central Banking in India

Mankiw, N. G. (2011), Macroeconomic Theory, New York: World Publishers

Masson, P. R. et al., (1990), Multimod Mark II: A Revised and Extended Model, USA: International Monetary Fund, USA: Macmillan

Palley, T. I. (2001), Endogenous Money: What it is and Why it Matters, Retrieved on April 17, 2012 from http://www.thomaspalley.com/docs/articles/macro_theory/endogenous_money.pdf

Parkin, M. and Zis, G. (1976), Inflation in open economies, UK: Manchester University Press

Stone, M. R. et al., (2011), Should Unconventional Balance Sheet Policies be Added to the Central Bank Toolkit? A Review of the Experience So Far, USA: International Monetary Fund

Thomas, L. B. (2005), Money, Banking And Financial Markets, USA: Cengage Learning

United Arab Emirates and the IMF, (2012), International Monetary Fund, retrieved on April 17, 2012 from http://www.imf.org/external/country/are/index.htm

Close ✕
Tracy Smith Editor&Proofreader
Expert in: Macro & Microeconomics, E-Commerce, Business
Hire an Editor
Matt Hamilton Writer
Expert in: Macro & Microeconomics, Human Resources, Management
Hire a Writer
preview essay on Central Bank: The Monetary Base
  • Pages: 20 (5000 words)
  • Document Type: Research Paper
  • Subject: Macro & Microeconomics
  • Level: College
WE CAN HELP TO FIND AN ESSAYDidn't find an essay?

Please type your essay title, choose your document type, enter your email and we send you essay samples