Sample Essay

The nature and size of the gross domestic product also needs to be analyzed. This is because a good monetary policy, is supposed to lead to the enhancement or growth of gross domestic product. An expansionary monetary policy will lead to increased growth of GDP since the increased money supply will lead to increased investments.

On the other hand, a contractionally monetary policy may lead to a decline in output not unless it is supported by an expansionary fiscal policy. Irrespective of this scenario, an expansionary monetary usually has an adverse effect of stimulating a rise in the rate of inflation.

Despite the use of these economic tools, there are some economic features that the Federal Reserve must have in order to be more effective in its operations. Since we know, the major goals of the monetary policy are full employment, price stability, currency stability and economic growth.

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