Monetary policies can work only if private enterprises respond to them in certain way; if they respond in other ways, the policies fail. Explain and give examples.

According to Monetarists, what should the government do if unemployment is 4% and inflation is 12%? Select one: a. Decrease the supply of money b. Decrease government spending c. Raise taxes d. Do nothing e. Lower interest rates

Please explain thoroughly the limitations of using the monetary policy tools.

The monetary policy has two basic goals: to promote “maximum” sustainable output and employment and to promote “stable” prices (Federal Reserve Bank of San Franciso). Making these two goals possible is based off of more than just monetary. Technology is now included because technology can replace employment. If people decide to save, it can affect both employment and the goods that can be reduced. There are many other things that can affect the maximizing of sustainable output. The cause-effect chain through is that policy can have an effect on banks and money supply. The monetary policy also has an effect the way consumers spending and the interest rates that are given by banks. It can also affect the way people invest. The major strengths of monetary policy is that it stable prices. When inflation rises faster than expected, the Fed may sell government bonds to take money out of circulation or raise short-term interest rates (Federal Reserve Bank of San…