Multiplier Effect Matty Gallardo Money supply plays a role in the of price level, interest rates and the acceleration in the growth pace of an economy. Also, to be a controlled expansion of money supply if the objective of development with stability in money. The Federal Reserve through its monetary policy seeks to control the money supply to achieve the desired economic growth. The Federal Open Market Committee (FOMC) is the monetary policymaking of the Federal Reserve System. It is responsible for formulation of a monetary policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The immediate impact of the higher demand from the government is to raise employment, and profits the workers see higher earnings. The firm owners see higher profits; they will respond to increase in income by rising their own spending on consumer goods. The result, the government purchase from Boeing raises the demand for the products of many other firms in the economy. Because each of the dollar spent by the government purchases a multiplier effect on demand. This multiplier effect …show more content…
government and federal agency securities. Having open market operations, the principal tool of monetary policy, affect the momentary of reserves to depository institutions and, in turn, the cost and availability of money and credit in the U.S. economy. Open market operations are a useful tool to make a change in the money supply. As is known money supply is determined by the money. The Fed has in control over the monetary base also called as high powered money. The Fed can affect the money multiplier by open market operations. Whenever Fed purchases securities it pays the bank for the government securities purchased by it. This increase the monetary base i.e. High powered money (as