Question

In: Finance

Suppose the Fed would like to stimulate the economy that is In a state of recession....

Suppose the Fed would like to stimulate the economy that is In a state of recession. Discuss what are the tools that the Fed would use to stimulate the economy and what will be the impact on the different variables such as the GDP, the Investment, Consumption , level of price ect .Show your work using graphical analysis.

Solutions

Expert Solution

Federal Reserve will be stimulating the economy in the state of recession in the economy by following manner-

A. Federal Reserve will be doing quantitative easing of the monetary policy in order to stimulate the economy

B. Federal Reserve will also be cutting down on the interest rate because lower interest rate will generate demand in the economy and it will also encourage more lending.

C. Federal Reserve will also be reducing the Reserve requirement of the commercial bank because reduction of The Reserve requirement will mean that the bank will be free to loan more in the market.

D. Federal Reserve can also be conducting the open market operations and they will be buying the securities from the commercial bank so that there will be infusion of liquidity in the system.

E. federal reserve will also be conducting out bailouts for various entities in order to revive them and reduce the financial condition.

Stimulation of the economy will be leading to increase in the gross domestic product and it will also be leading to increase in the investment along with the increase in the consumption level of the prices so it will be leading to generation of the jobs and stability of the economy which will be helping in generation of the demand and revival of the businesses.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

The economy is in a recession. A congresswoman suggests increasing spending to stimulate aggregate demand but...
The economy is in a recession. A congresswoman suggests increasing spending to stimulate aggregate demand but also at the same time raising taxes to pay for the increased spending. Her suggestion to combine higher government expenditures with higher taxes is: a. The worst possible combination of tax and expenditure changes. b. The best possible combination of tax and expenditure changes. c. A mediocre and contradictory combination of tax and expenditure changes. d. None of the above. After selecting your responses...
When an economy is in a recession, the Fed needs to do a (an) ________ monetary...
When an economy is in a recession, the Fed needs to do a (an) ________ monetary policy. This policy would ________ prices. A) expansionary; lower B) expansionary; raise C) contractionary; lower D) contractionary; raise
If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss...
If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss two of these tools and with the help of an AD-AS model, demonstrate the effect on output and price-level.
If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss...
If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss two of these tools and with the help of an AD-AS model, demonstrate the effect on output and price-level.
In which of the following situations would the Fed have the most power to stimulate the...
In which of the following situations would the Fed have the most power to stimulate the economy? - the federal funds rate is zero and the inflation rate is 0% - the federal funds rate is zero and the inflation rate is 2% Does the preceding question and answer describe why the Fed prefers inflation of 2% as opposed to inflation of 0%? yes no
It is 2009 and the US economy is mired in the Great Recession, the Fed has...
It is 2009 and the US economy is mired in the Great Recession, the Fed has been taking action to stimulate the economy, and Congress just passed the stimulus bill which President Obama signed into law. It allowed for tax cuts and increases in government spending. Explain clearly the impact of the joint actions taken by the Fed and the government on US output in the short run using the IS-LM-FX model. Point out two problems with these policies that...
It is 2009 and the US economy is mired in the Great Recession, the Fed has...
It is 2009 and the US economy is mired in the Great Recession, the Fed has been taking action to stimulate the economy, and Congress just passed the stimulus bill which President Obama signed into law. It allowed for tax cuts and increases in government spending. Explain clearly the impact of the joint actions taken by the Fed and the government on US output in the short run using the IS-LM-FX model. Point out two problems with these policies that...
The economy is in a recession. The FED engages in an open market operation (OMO). Explain...
The economy is in a recession. The FED engages in an open market operation (OMO). Explain in detail how the economy will react. Explain the OMOs impact on asset allocations and the prices of securities; Explain how the OMO will impact the real economy, explain each step of the adjustment process, graph the process.        
Why does the Fed buy government securities during a recession? a. If the economy is facing...
Why does the Fed buy government securities during a recession? a. If the economy is facing rising levels of inflation, what would the Fed do with its three monetary control tools? b. What was the original intent of the Federal Reserve Act of 1913? What are the limitations to the Fed’s independence?
Why does the Fed buy government securities during a recession? a. If the economy is facing...
Why does the Fed buy government securities during a recession? a. If the economy is facing rising levels of inflation, what would the Fed do with its three monetary control tools? b. What was the original intent of the Federal Reserve Act of 1913? What are the limitations to the Fed’s independence?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT