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Summarize the monetary policy measures taken by central banks to address the worldwide financial crisis (2008)...

Summarize the monetary policy measures taken by central banks to address the worldwide financial crisis (2008) and the COVID crisis (2019/2020).

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Expert Solution

Hi,

Monetary Measures taken by Central Banks to address Financial Crises (2008) & COVID Crises:-

Financial Crises (2008) and COVID Crises lead the gobal economy into the phase to recession. Economies of most of the countries has been hit negatively. To overcome and restore economic condition back to normal Central Bank of the nation has to take certain monetary Policies. Some of them are:-

  1. Reducing Interest Rates of Loan:- Sanction of loan to People of the country at lower interest rate encourages them to produce more and more and hence Production in economy will rise and ulimately Gross Domestic Product (GDP) will increase.
  2. Purchasing Government Securities :-Purachsing of Governement Securities act as two sided sword. Firstly, Due to Financial crises of 2008, the investors who invests in Soverign Securities are afraid of  repayment. By Purchasing Soverign Securities Central Bank Repays to those investors and at the same time injects money in the market which leads to increase in money supply in the economy which ulimately leads to increase in expenditure of household. Increasing expenditure of household will increase production in the economy.
  3. Reducing Reserves Ratios:- Central Bank requires Commercial banks to to keep a certain percentage of Deposit with central Bank and certain Percentage of Deposit with themselves from which amount a commercial bank will not able to lend money. If central bank reduces Reserves Ratios then the reaserve which Commercial bank will have to keep aside with Central bank will reduced and bank will able to lend more money which leads to increase in money flow in the market which increases production and ultimately Economy had recovered from crises.
  4. Interest on Loan Waiver:- Mostly in COVID situation, certain countries like India, had waived off interest on loan to be paid by borrowers to give them Direct financial assistance. This has done because due to COVID, borrowers bsuiness had been effected adversly, so they are not in a position to repay interest on loans. So, governement has waived off interest and Interest on interest to give them direct financial assistance.

Thanks !


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