Question

The Federal Reserve Bank announced that it was changing its policy from expansionary monetary policy to a more contradictory policy to prevent inflation from increasing as the economy recovers from the 2007-2009 recession. As a result, interest rates will rise. Was this a good move? Why or why not? Define monetary policy.

Answer 1

Ans. Yes this is a good move in a long run. As the US economy is recovering from recession, employment rate has increased as well the gdp growth rate is at 16 year high. With all these factors taken into account, the inflation also grows with good growth rate. So to contain the inflation Fed has to change its policy forn expansionary to contradictionary and increase the interest rate to decrease the money supply in the economy.

Monetary strategy comprises of the activities of a national bank, cash board or other administrative council that decide the size and rate of development of the cash supply, which thus influences financing costs. Financial strategy is kept up through activities, for example, adjusting the loan fee, purchasing or offering government securities, and changing the measure of cash banks are required to keep in the vault (bank saves).

Comprehensively, there are two sorts of financial arrangement, expansionary and contractionary. Expansionary financial strategy builds the cash supply with a specific end goal to bring down joblessness, help private-segment getting and purchaser spending, and animate monetary development. Frequently alluded to as "simple fiscal approach," this portrayal applies to numerous national banks since the 2008 monetary emergency, as loan fees have been low and much of the time almost zero.

Contractionary financial approach moderates the rate of development in the cash supply or out and out abatements the cash supply with a specific end goal to control expansion; while once in a while fundamental, contractionary money related strategy can moderate monetary development, increment joblessness and discourage acquiring and spending by customers and organizations. A case would be the Federal Reserve's mediation in the mid 1980s: keeping in mind the end goal to check expansion of almost 15%, the Fed raised its benchmark loan fee to 20%. This climb brought about a retreat, however kept spiraling swelling under control.