Question

Comment on the theory underlying the use of a monetary rule by the Federal Reserve. Does the use of such a rule seem appropriate under current economic conditions? Explain.

Answer 1

The situation at the global level remains the economy. Keynes's theory of demand supply at that time seems more relevant. Therefore, according to its principle, liquidity should be increased by supplying money by the government and through the banking system and efforts should be made to provide employment to the peoplepeople by increasing economic activity and production as consumption increase demand which will boost producer to produce more and more.

As we know, covid-19 has created a state of resonance across the world. Therefore, the demand deficit which has arisen and the label of consumption has fallen. To make it, constant supply of currency is very important. Whenever the supply of money comes, it can be generated either by the central bank of that country or by the government of that country using the expansive fiscal policy.