Question

 

• Evaluate the actions that the Federal Reserve and the government took during this period. Do you support their actions in both monetary policy and fiscal policy? Why or why not?
• Recommend an alternative policy or method that could have better resolved the financial crisis if you were a decision maker (of monetary policy or fiscal policy) during the period.
• Give advice, as a prominent classical or Keynesian economist, to the Federal Reserve and/or federal policy makers to prevent future economic or financial crises.

Answer 1

The government and Fed both applied expansionary fiscal policy and expansionary monetary policy during 2008 Recession with automatic stabilizers as well.

Both were well calibrated as quantitative easing was implemented snd structural reform in banking sector with stringent laws were applicable.

However this could have been better resolved if crisis was seen way earlier and if the implementation lag was lesser. Also higher bailout packages from Fed alongvwith better job creation model through expanded credit would have solved problems faster.

To prevent future crisis, strong regulatory reform and compliance levels are needed and multiple risk management frameworks need to be made compulsive to avert such crisis in future.