Question

• Explain how you would expect the Federal Reserve’s monetary policy to change in the next six months, based on the financial market today, addressing the following:
  • Is the Federal Reserve more likely to implement expansionary policy or contractionary policy?
  • How would this change affect your institution/intermediary and the financial markets?
  • How would your institution/intermediary respond to the anticipated Federal Reserve’s monetary policy change?

Answer 1

Some of the main problems we are facing now is that production in the economy has decreased, sales have gone down, unemployement increased which reduced spending leading to the fall of the aggregate demand. This has made it difficult for businesses to survive.

• So at this time the Federal Reserves monetary policy will implement the expansionary monetary policy which will increase the liquidity in the economy by reducing the interest rates and bank reserve ratio enabling the banks to lend more increasing the money supply.
• Expansionary monetary policy which reduces interest rates which will encourage my firm to borrow more and formulate a strategy to invest to develop the firm   to increase the firms output. The reduced interest rates will also ecourage people to invest in financial market rather than saving it and ear lower interests. This will increase the flow of money in the economy.
• As discussed earlier it will enable my firm to borrow more money to invest in resources and to create a healthy and safe atmosphere for people to continue the work to increase the output produced.