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13 May 2019

If the policy interest rate is near zero, what less conventional monetary policy tools might a central bank use to stimulate the economy? How do these tools work? In what way is central banking in the euro-zone area different from or similar to the Federal Reserve System?

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Jamar Ferry
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13 May 2019
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Related questions

The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of its key roles is conducting monetary policy.

  1. What is monetary policy?
  2. Suppose the Fed wants to close an inflationary gap. How could it use each of the three tools of monetary policy to close the gap?Ā 
  3. Using the monetary policy tool the Fed employs most often, the Fed closes an inflationary gap. Describe the steps the economy goes through to move to the new equilibrium output and price level. Use graphs with your answer and be sure to label everything completely.

Ā 

In an effort to move the economy out of a recession, the federal government would engage in expansionary economic policies. Respond to the following points in your paper on the actions the government would take to address expansionary fiscal and monetary policies:

Expansionary Fiscal Policy:

Explain the actions the federal government would take while engaging in expansionary fiscal policy in terms of the following:

The necessary change in taxes and government spending,

The effect on aggregate demand, GDP, and employment.

Expansionary Monetary Policy:

The three tools the Federal Reserve Bank (The Fed) uses when conducting monetary policy are the required reserve ratio, the discount rate, and open market operations.

Explain the actions of the Fed in regard to the three tools.

When the required reserve ratio is increased or decreased

When the discount rate is increased or decreased

Buying or selling government securities when conducting expansionary monetary policy

Explain how these actions would affect the money supply, interest rates, spending, aggregate demand, GDP, and employment.

Step 3: review what open market oprations are and how they can affect the money supply. Why does the Federal Reserve rely on this monetary policy tool to change the money supply. 20 points

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