Question

Respond to the following prompts in a post with a minimum of 200 word

• Since the end of the Great Recession, interest rates have been at historic lows—in some cases, close to zero. How is expansionary monetary policy, or more specifically a open market purchase, supposed to work? How do near-zero interest rates limit the ability of expansionary monetary policy to work?
• How has the Fed responded to this quandary? That is, what policies has the Fed conducted?
• In your opinion, how effective has the Fed’s policy been as a response to the Great Recession? What evidence can you suggest to support your position?

Please answer the second and third parts

Answer 1

How has the fed responded to this quandary? That is, What policies has the fed conducted?

(i) Changing the monetary policy:

Monetary policy is one of the highly effective tools to revive the economy even if the short term interest rates are already near zero.

• expansionary monetary policy: used to increase the liquidity in the economy, and which can be conducted in the open market purchase, moreover it does not have to be in government securities.

Expansionary monetary policy is the key action which is required to bring round an economy experiencing deflation. For example, foreign currencies like the purchase of government bonds and securities tend to increase the money supply and monetary base. It also helps in resuscitating the economy by raising the general price level expectations and be reflating the prices of other assets which stimulates aggregate demand.

(ii) Manipulating interest rates

(iii)open market operations

(iv)Reserve requirements

(v)Influencing market perceptions

(3) Fed's policy response to the great recession :

The federal reserve along with other institutions tackled the situation quite effectively, the following are the evidence:

The main focus was on monetary policy and fiscal policymakers had done an unprecedented and aggressive approach in stabilizing the economy.

• it established in first, liquidity to financial institutional markets.
• Engaged in massive quantitative easing.
• Purchasing treasury bonds and Fannie Mae and Freddie Mac Mortgage-backed securities to bring down long-term interest rates.
• The FDIC worked to stem the financial turmoil by increasing deposit insurance limits and guaranteeing bank debts.