Macroeconomic Impact on Business Operations

Running head: MACROECONOMIC IMPACT ON BUSINESS OPERATIONS

Macroeconomic Impact on Business Operations

Tourea B. Robinson

University of Phoenix

MBA/501

Kenneth Smith

November 26, 2006

Macroeconomic Impact on Business Operations

This paper will discuss the objective of monetary policy and its influence on the performance of the economy as it relates to such factors as inflation, economic output, and employment. Monetary policy affects all kinds of economic and financial decisions people make in this country, whether to get a loan to buy a new house or car or to start up a company, whether to expand a business and whether to put savings in a bank, in bonds, or in the stock market. Furthermore, because the U.S. is the largest economy in the world, its monetary policy also has significant economic and financial effects on other countries.

According to the Purposes and Functions of the Federal Reserve System, monetary policies are spelled out in the Federal Reserve Act. Monetary policy is conducted by the nation’s central bank, the Federal Reserve System (Fed). According to Brue & McConell, the Fed has three tools of monetary control it can use: open market operations, reserve ratio/requirement and discount ratio.

Most often, open market operations is used. Open-market operations are the Fed’s most important instrument for influencing the supply of money (Brue & McConnell, 2004). These operations consist of the Fed buying and selling previously issued U.S. Government securities, or IOUs of the Federal Government.