IntroductionEconomics mainly focuses on the impact of government laws and policies on the economy. Much of this concerns taxes specifically and, more generally, public finance, which includes government spending and borrowing. The key word in economics is economy. Economy comes from the Greek oikos - house and nomos - to manage. (Dkosopedia, 2006) The economy can be described as the current strength of financial indicators such as employment and job growth, economic productivity and production, and can also be measured by a wide range of other factors such as the trade deficit, national debt, GDP and unemployment rates. In this article, the effects of monetary policy on macroeconomics, GDP, unemployment, inflation and interest rates will be discussed. Throughout the article we will provide explanations of how money is created, as well as discuss which combination of monetary policies will achieve the goal of economic growth, low inflation and a reasonable unemployment rate and which combination of monetary policies will best achieve this goal. Monetary Policy ObjectivesOne of the objectives of the Federal Reserve, commonly known as the Fed, is to influence economic output and employment, both of which depend on many other factors. They are influenced by monetary policy; when demand weakens, the Fed lowers interest rates, which in turn stimulates the economy, allowing the consumer to spend more and industry to produce, so job retention is good. Instead, the stimulus continues to raise wages or if demand falls, productivity will decline, jobs will be lost and this will push the economy's inflation higher. The Fed simply seeks to smooth out the headwinds of the natural business cycle. Inflation is an economy-wide increase in prices that is bad because it makes it difficult to tell whether the price of a business product is increasing due to increased demand or inflation. Inflation also adds a premium to long-term interest rates. Much debate surrounds whether zero inflation is a goal. Some economists say that when inflation is low, interest rates are low, so the Fed doesn't have much room to boost the economy if necessary. When inflation is close to zero, the risk of deflation increases. Deflation occurs when there is a nationwide drop in prices. On the surface, this may seem optimal for the consumer, but it is just as bad as inflation. Prolonged deflation, such as the Great Depression, can lead to significant declines in the value of homes and businesses.