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The government has implemented fiscal and monetary policies in order to stabilize the economy as a...

The government has implemented fiscal and monetary policies in order to stabilize the economy as a result of the COVID-19 pandemic. Discuss three channels by which the government’s monetary policy actions might affect stock prices and aggregate spending. What do you think about the impact these monetary policy decisions might have on the labour market ?

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Expert Solution

Three channels by which the government monetary policy action will be impacting the stock prices and aggregate spending as follows-

A. Monetary policy will include cutting of interest rates in order to stimulate the demand in the overall economy so this will be leading to increase in the stock price because Federal Reserve is trying to liberalise its policies in order to to support the economy.

B. Reducing the Reserve requirement for the bank will also be helpful in order to free the rerves of the commercial bank so they can provide more of the loans to the public and can increase the Liquidity in the economy.

C. One of another monetary easing policy would be to providing bailout packages to various companies which are prone to liquidation so it will be helping those company to survive and sustain in these adverse environment.

Yes I think monetary policies will be helpful in order to create the demand in the labour market because stimulation of the demand will be leading to lesser unemployment in the country and providing of the liquidity in the country will be helping the business to keep themselves stable and recruit new people so there will be demand for the labour in the market.

jeff jeffy answered 1 year ago
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