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... or higher prices and larger wages, which adds to inflation. The U. S. inflation rate does not only depend on the U.
S. though. If the Fed drove more dollars into the U. S. it would ultimately drive the value of the dollar down in the foreign markets. People with the extra money in the U.
S. would buy foreign products which would make higher foreign prices, which would create higher U. S. prices.
It takes a fairly long time for a policy action to take effect. The lag for major effects on output can be anywhere from three months to two years. The effects on inflation usually take even longer, one to three years or more. The policy is a complex chain of events that can alter anywhere along the way. The lags are very hard to predict and make it hard for the feds to make decisions. How Does the Fed Decide the Appropriate Setting for the Policy Instrument?
The feds make decisions using several steps. First, they examine how the economy is doing and how it's likely to do in the next couple of years. Then they compare these numbers with their goals for the economy. If there is a gap, they decide how forcefully they should act to close the gap. The fed uses the most up-to-date data on variables that affect the economy like employment, growth, and productivity. But these things still reflect conditions of the past, not the future.
This is why the fed must examine the current government tax and spending policies, along with new technology that may boost productivity. There are many problems with using a model to predict the economy, though. One problem is that no one model explains the economy better than another model for any situation. Another problem is that the forecast can't predict unexpected things, like September 11 th for example. Uncertainty plays a major part in the system. There is no set of policies or procedures that the fed can use with all the situations that may arise.
This is why the feds make decisions on a case-to-case basis and use every resource, including the Federal Reserve Bank, advisory bodies, and the press, to make decisions. The name of the mutual fund in which the retirement is invested is an American funds accounts and the name of the account is Washington Mutual Investors Fund - A, It is an aggressive account or a growth - and - income account. American Funds Investment Company of America Fund seeks long-term growth of capital and income. The fund invests primarily in common stocks. When choosing securities, management gives the possibility of appreciation and potential dividends more weight than current yield. Securities are added to, or deleted from, the eligible list by the board of directors, reviewing and acting upon the recommendations of the investment advisor.
The fund may invest in securities of issuers domiciled outside of the U. S. and not included in the S& amp; P 500 Index. Looking in the financial section of the Sunday newspaper the information that was given about my fund is the following The NAV is 31. 43 + 0. 13 + 0. 42 %, Net Assets are 63. 83 Billion, Morningstar Ratings 3 stars, Risk is below average, Return is average, Returns for 3 months + 6. 35 %, for 1 year is + 14. 10 %, Morningstar Category; Large Value.
It does seem to be a safe investment for being a long term investment being that we have more years of working before we retire. I don't know of any other mutual funds for options for retirement funds it is something that my husband and I are looking into at the moment since he took on a new job and I becoming permanent at my job we will be getting the opportunity in the near future. As of right now my mutual fund does not compare to my options there fore I will be looking at the options of the investments when we get them in the future so that we make a well thought out decision. The issues that I might consider as I get better acquainted with our retirement planning is how much free money can we receive and how fast will it grow and most importantly how much money do I need to retire when I become of age and who will help me get there faster.
Monetary policy has affected the stock market and the mutual funds very little in which our retirement funds are invested. A reduction in interest rates would force banks to lower their lending rates and borrowing rates. So if I want to place a deposit with a bank or take a loan, it would offer it at a lower rate of interest. On the other hand, if there were to be an increase in interest rates, banks would immediately increase their lending and borrowing rates.
Since the rates of interest affect the borrowing costs of corporatist and as a result, their bottom lines (profits), the monetary policy is very important to them also. Most people attribute the link between the amount of money in the economy and movements in stock markets to the amount of liquidity in the system. This is not entirely true. The factor connecting money and stocks is interest rates. People save to get returns on their savings. In true market conditions, this made bank deposits or bonds and stocks, competitors for people's savings.
A hike in interest rates would tend to suck money out of shares into bonds or deposits; a fall would have the opposite effect. This argument has survived econometric tests and practical experience. After reviewing the accompanying data regarding saving and investing, how might understanding monetary policy assist me in improving my wealth accumulation score? Simply by researching and reading the fine lines in any investment or purchase my husband and I make.
We could also bring it up by not getting into debt and be a smart consumer. References Colander, David C. Macroeconomics (5 th ed. ) Irwin/McGraw-Hill, 2004 Burr Ridge, IL, Retrieved on June 30, 2005 from University of Phoenix Resources web "Monetary Policy, " Microsoft Encarta Online Encyclopedia 2005 web & amp; copy; 1997 - 2005 Microsoft Corporation. All Rights Reserved.
The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp. , 1995 - 2005, Distribution
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