Monetary Policy and Economic Crisis Essay Example | Topics and Well Written Essays - 2250 words

Monetary Policy and Economic Crisis - Essay ExampleOne of the most important responsibilities for the Fed is that of ensuring monetary perceptual constancy in the economy, which scum bag be achieved through a combination of stable prices of goods and services across the economy coupled with a low inflation aim and level of confidence of the investors in the currency of the country. The Fed comes out with monetary policy in order to ensure a certain key objectives similar delivering price stability with a low inflation level coupled with an objective to support the Governments economic objectives of growth and employment. To understand how the Fed monitors price cogitate regulations to keep a check on inflation, we may consider a small example of the regulation of house and property prices. To ram any decisions cerebrate to interest rates keeping in mind the ongoing inflation rate, the Fed must be thorough with the booming property prices and must take steps to ensure that the prices are not artificial.Government intervenes through its central bank to regulate the prices of many commodities, similarly it also regulates the prices of houses like any other important commodity. Fed has the responsibility to keep a check on asset prices including the prices of houses. ... (Demand and Supply for Housing).Other reasons behind a change in property prices can be Mortgages. A mortgage is the money borrowed to buy a house, as for most people buying a house is not easy. Over the long time mortgage market has picked up greatly and the current scenario is totally different from the one that existed in the beginning. Mortgages were supplied plainly by the building societies. Building societies were non-profit institutions and encouraged only the members for the grant of loans, so the people who were members and had contributed to an extent for a considerable period of time got loans easily and account with building societies became the only means to get mortgages. curtly these societies had to compete with the banks and other financial institutions specialized in granting housing loans. This price war resulted in a greater demand for owner occupied houses and thence the demand for houses grew stronger, resulting in a substantial increase in price. (The UK Housing grocery - Factors Influencing the Housing Market Mortgages) Besides the above-mentioned factor of mortgages there are other factors like stamp duty and planning that affect the market for housing. Mortgage interest relief at source (MIRAS) was a tax subsidization to owning a house. It reduced the house owners liability to income tax as the money spent on the interest on mortgage was considered to be tax-free. This made borrowings cheaper and as a result there was a huge demand for housing and the prices shot up. With the introduction of MIRAS in 1990 many people were exempted from stamp duty. (The UK Housing Market - Factors Influencing the Housing Market Stamp Duty and Planning) The central bank sets a fixed interest