Question

Write a brief news blog explaining either expansionary or contractionary policy. In your response, be sure to

give your blog a catchy title,

name the policy you are explaining,

explain the objective of the policy,

describe the desired result of the policy, and

discuss possible issues or problems that may arise as a result of that policy.

Answer 1

Expansionary monetary policy

• Monetary policy boost to expand the money supply
• to boost economic activity by keeping interest rates low
• encourage borrowing by individuals, organizations, and, banks

It may involve quantitative easing, Central banks buy assets from banks. It is not currency manipulation.

Desired Result

The result is cheaper borrowing for banks, and, lower yield on bonds. It boosts banks capacity to lend to businesses, and, individuals. It is also for increasing the rate of inflation, and, expansion of the GDP.

Possible problems, or, possible issues

Yields on bonds of highly rated sovereigns increase, the expansionary monetary policy would have worked.

• It may increase inflation
• Money supply exceeds money demand
• It impacts consumption, and, investment
• Places excessive emphasis on short-term gains
• May lead to high-debt trap at zero interest
• Impact after two years of policy action
• High Government debt
• Backlash can lead to hysteresis of low-interest rate