Question

After reading the materials found below and what you learned in the Chapter answer the following discussion question:

1. A. What monetary policy and functions of The Fed have been implemented during the Covid-19 pandemic?

B. What is the Fed’s Dual Mandate and how do the policies you found for question 1 related to achieving these?

Answer 1

1. A.

During the period of COVID-19, Federal Reserve came up with expansionary monetary policy to help households, firms, banks  and financial institutions in the economy to face the challenges when economy was partially shutdown. As a part of expansionary monetary policy, the Fed decreased federal fund rate to the level of 0% and conducted open market operations to purchase securities to help maintain liquidity in the economy. At the same time, Fed provided financial support to the tune of over $2 Trillion help households, firms and other entities in the economy so that aggregate demand is maintained and consumers do not become pessimistic towards economic output. At the same time, Fed actively worked as a banker of of the bank function to provide direct lending to the banks. It was done to prevent any panic among the depositors. At the same time, Fed performed the function to provide financial support and lending to the primary dealer organizations via facility of primary dealer credit facility to help these dealers continue to operate and honor the customer demand.

While doing above initiatives, Fed also performed the function of spreading awareness and confidence to the people with respect to economic recovery and proactive action plan. It helped people get relieved and prevented unnencessary speculation in the economy.

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1. B.

The dual mandate is the achieving price stability and achieving maximum employment in the economy. It is done by Fed, by achieving inflation rate target and stimulating aggregate demand and create new jobs in the economy.

The initiatives taken up in part 1.A. shows that near zero federal fund rate, financial support to different sectors in the economy, household and money supply increase, are going to stimulate the aggregate demand. It will keep firms produce and also create jobs to make employment. At the same time, inflation rate is also increased to the level of 2% or near to it. So, both the mandates or dual mandate is achieved by taking action as mentioned in answer 1.A.