Monetary policy aims to stabilize the economy and reduce unemployment rates. The central bank can use expansionary policies, such as reducing interest rates, to encourage businesses to expand and hire more workers. This link between monetary policy and unemployment is crucial in times of economic downturn.
The term monetary policy is used to describe the means by which a major monetary regulator within a country seeks to influence the flow of money within a given economy through initiating and disseminating policies aimed at stabilizing economy general. In this regard, a stable rate or level of employment in the country would be one of the main objectives of the monetary authority, a task which is usually reserved for the main or central bank in that country. As such, the relationship between monetary policy and unemployment is the fact that monetary policy is used as a means of regulating the economy, something which necessarily involves the reduction of unemployment. To this end, monetary policy can be expansionary or it can be designed to be contractionary. This link between monetary policy and unemployment is very evident, as expansionary monetary policy is specifically geared towards ensuring that unemployment rates are kept to a bare minimum, especially when the economy is or may soon be in a recession.
Further analysis of the connection between monetary policy and unemployment will reveal that one of the monetary policies adopted by the top bank in an economy under review to lower unemployment rates is a reduction in interest rates. This is done by the regulatory bank with the intention that the reduced rate will have a knock-on effect on the economy, eventually leading to the hiring of workers and unemployment, especially in a recession. Usually, when the major bank cuts its interest rates, other banks in the economy will serve as a vehicle for implementing monetary policy by also reducing their own interest rates and easing some of their conditions for approving loans to individuals and similar businesses. This can be seen in how interest rates associated with acquiring and using credit will be reduced, making it more likely that various businesses will have access to the loans needed for expansion as well as maintaining and growing the business .
The link between monetary policy and unemployment here is that the ability of businesses to gain easier access to loans and lines of credit will serve as a means for them to not only continue their operations but also make room for expansion. If so, these firms will not have cause to increase the unemployment rate by laying off their workers in times of economic downturn. The reverse is the goal in enforcing an expansionary monetary policy as this will serve as a means for businesses to not only retain their employees but also to hire more due to likely expansion.
Protect your devices with Threat Protection by NordVPN
