Question

The number of jobs available in the U.S. economy is largely determined by the number of workers private firms choose to hire. In​ 2016, firms employed 124 million people. The Federal Reserve is part of the federal government and hires relatively few​ people, about​ 22,000 in 2016. Even if the Fed doubled or tripled its work​force, it would have little impact on employment​ levels, yet economists strongly link actions of the Fed to the level of total employment in the economy.

Carefully explain how the Fed is able to affect the level of total employment in the economy. Be sure to include all relevant actions the Fed can take in affecting total employment.

Answer 1

--> Economic Stimulus: During the times of economic crisis when the output is slacking behind the potential output and also unemployment is high, the Fed can implement an expansionary monetary policy to expand the output. Such policies will tends to decrease borrowing interest rates and also allows the private businesses to invest in the expansion of their business and can even develop more ventures also.

--> Combatting Inflation: The Fed will likely increase the ongoing interest rate in the economy by utilizing open market operation or increase the reserve requirement of the commercial banks. This moves decrease the quantity of the lonable funds and also increase the interest rates.

--> Fed policies and Globalization: Fed policies in case are tighter and are not business friendly, the firms will likely invest in the other global markets. Therefore the employment oppurtunity will shifts to the international borders than within the domestic borders. This will expand FDI employment and human capital development domestically.