Question

A) What are two major differences between fiscal and monetary policies?

B) What is he FED’s inflation target?

C) What is the LOLR function of the FED?

D) What would you recommend for the government to do today during the COVID crisis? How will this help the economy?

Answer 1

A.

The first difference is that fiscal policy uses spending and or taxation to achieve, economic goals, whereas monetary policy uses money supply to achieve its economic goals. The second difference is the nature and motivation of the policies. Fiscal policies are more driven by political promises and populist demands, but monetary policies are free from any political influence and are helpful to implement policies to achieve long term objectives for economy growth, prosperity and stability.

===

B.

Inflation rate target is the target inflation rate, that Fed wants to maintain in the economy. At present, it is 2% inflation rate target in the economy.

===

C.

LOLR function is the lender of last resort function of Fed. Under this function, Fed provides credit, loans and other financial help to those banks and financial institutions who need it and are highly vulnerable in the absence of such support. So, Fed is considered as last lender, as other lenders do not commit to help the suffering institutions with credit or loans.

Pl. repost other unanswered questions for their proper answers!