The Gross Domestic Product (GDP) is a calculation that provides insight into the current economy of our nation to allow individuals to understand the current and past year’s standings in the economy. The calculation of the GDP allows for the government to determine what adjustments are necessary to manage an effective status for the economy. Based upon the GDP the government can forecast any necessary changes that must be made to either the monetary policy or the fiscal policy. The wealth of a country is based upon the government’s ability to manage the economy through the monetary system and not on the amount of money that is located within that economy. The calculations for the GDP are produced to provide the most accurate totals that can result in a smooth transition for the financial market which allows the government the necessary time needed to react to a recession.
Purpose and Function of Money
The purpose of money is to act in an economy as an asset which allows consumers to trade for a product or services. Money includes four functions: to work as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment (Hubbard & O’Brien, 2010). When used in international transactions money also results in a trade that is easy. Money allows for individuals to feel secure among their transactions and ensures them that a form of payment is guaranteed to them. Most importantly money aids individuals in acquiring the resources that are necessary to live their life.
The Monetary Policy is conducted by the Feds which include seven people from the Board of Governors and an additional five members whom are Presidents from regional banks. The Feds determine the money supply movement based on the current standings of the economy. To stabilize the economy bonds are used which release money into the market. The responsibility of the Central Bank is to maintain the health of the banking system and regulating the purchase and sale of bonds. The interest rates are controlled to balance the markets. According to the Monetary Policy Report to Congress, “The Federal Open Market Committee (FOMC) maintained a target range of 0 to ¼ percent for the federal funds rate throughout the second half of 2009 and early 2010” while representing forecasted economic decisions to rationalize low levels for longer times on the federal funds rate (Federal Reserve, 2010). Purchases were still being made by the Fed’s to result in improvements to the economy through focusing on mortgages, the real estate market, and the credit market. Predictions by the Federal Open Market Committee depicted low levels on the federal funds rates in early 2010 which would continue for some...