Increasing the supply of money implies that more money has been pumped into the economy. Apparently, this is carried out by central banks of countries when they purchase securities and offer funds to financial institutions such as banks. As a consequence, this contributes toward lowering the rates of interest, and banks have more money than they lend. Hence, an increase in the supply of money brings about increased consumer expending and promotes increased investment. Notably, all these occur because the rates of interest are lower and the financial institutions have an increased willingness to offer loans (Tarver, 2015).
How my Organization is affected
Increased consumer expending leads to an increase in demand for products and services. Because of this, the demand for the products that my organization produces also increases. To ensure the increased demand is met, my organization takes the initiative to intensify its production capacity and goes to banks to obtain a loan. Before that happens, my organization works overtime to ensure the demand is met (Tarver, 2015).
Federal Reserve Policies Affecting Households
Federal Reserve comes up with policies with the intention of controlling and sustaining the development of the economy. In that regard, Federal Reserve creates contractionary or expansionary policies. An increase in the supply of money is a portion of the expansionary monetary policy, which makes consumers to expend an increased amount of money, and this leads to an increase in the aggregate demand. On the other hand, the reverse occurs when the Federal Reserve employs a contractionary monetary policy with the aim of controlling inflation (Microeconomic Tips, 2017).
Cost of Inflation
Inflation costs include reduced international competitiveness, uncertainty and confusion, bust and boom economic cycles, menu costs, and shoe leather costs.
Costs to the U.S. Economy
The most important cost to the economy is reduced international competitiveness. A comparatively higher rate of inflation will make the U.S. commodities less competitive, and this will lead to a reduction in exports (Tarver, 2015).
Shoe Leather Costs
The costs of moving to the bank include the value of one’s time, the inconvenience of lacking more money on hand, and fuel for one’s car used to move to the bank. Notably, it might be hard to measure these costs in dollars, but this might depend on shopping opportunities values, which one gives up by lacking adequate money to purchase commodities he or she wants. My college president is different from me majorly in receiving a higher wage; hence, a higher cost of his time.
References
Microeconomic Tips: How do Changes in the Monetary Supply Affect Aggregate Demand? (2017). Saudi Aramco. Retrieved from, http://www.saudiaramco.com/content/dam/Publications/CPP/HowMoneySupply.pdf
Tarver, E. (2015, September 22). How is money supply used in monetary policy? Investopedia. Retrieved from, https://www.investopedia.com/ask/answers/052215/how-money-supply-used-monetary-policy.asp.
