11 - THE IMPLEMENTATION OF MONETARY POLICY

Abstract

This chapter discusses the implementation of monetary policy. The tools of general credit control are used by the Federal Reserve with the objective of stabilizing economic activity. The formulation and execution of a program to achieve stability is commonly called monetary policy. To understand and evaluate monetary policy, the objectives to be achieved by it must first be set forth. The achievement of a low level of unemployment may cause the rate of change of the price level to accelerate, which will probably produce some imbalance in the international trade accounts. Because of this incompatibility, the history of the United States is replete with instances wherein one objective has been held more important than others. In the 19th century, equilibrium in the balance of payments was more highly regarded than, for example, the maintenance of full employment. The experience of the Great Depression pushed to the forefront the importance of minimizing unemployment regardless of the status of the international accounts.