Question

Suppose you are a member of the FOMC and the U.S. economy is entering a recession. Write a directive (at least 4 typed pages, including your sources) to the committee about the conduct of monetary policy over the next two months. At the meeting, the committee will respond to changes in economic prospects as needed to support the attainment of its objectives. Your directive may address a target for the GDP growth rate, the federal funds rate, and the rate of inflation. Be sure to make specific proposals. Indicate why your recommendations will work. You may submit your paper to your instructor.

Answer 1

If an economy is moving towards recession, expansionary monetary policy will enhance the then economic time. Over the next two months this monetary policy will maintain the economic conditions and protect the economy to move towards a progress period. Federal Reserve’s monetary policies will response to the financial and economic crisis. Reduction of federal fund rate to its lower bound of zero. The Federal Open Market Committee will employ the tools and promote economic recovery and also focused for price stability. High rate of unemployment can be reduced through reducing fund rates. This will also reduce the inflation rate also. The reduction in fund rate makes the cost of borrowing cheaply. Thus people will come to borrow huge amount of money tried to meet their need at the inflation generating market. The estimation of Taylor rule can be provides a benchmark for appropriate monetary policy.
This expansionary monetary policy will shape the private sector expectations also, regarding the short run interest rates, long term interest rates and other asset prices. If there is reduction in the interest rates, the investment rates will increase. This will helps to enhance the production level and national income. The FOMC participants will publish long term output growth, unemployment and inflation. This long term policies will help to illuminate the strategies and goals. The positive inflation expectations will prevent the expected inflationary pressures and helps to reduce the inflation in future. Use of conventional policy tools through expansionary monetary policy will change the size and composition of balance sheet. Broad set of collateral orders will enhance the liquidity in the financial market and improve the credit flow towards economy. He expanded balance sheets will lower the cost and improve the availability of credit to households and businesses. This expansion can be done through purchasing long term securities.

Answer 2

The Monetary stimulus will increase economic time whenever an economy is progressing towards recession. The financial system will stabilize a stable market situation over the next two months to protect the market to move to a successful stage. In response to both the financial and economic crisis, the financial policies of the reserve bank. The fund's rate level falls towards its zero cut off point. The fomc will use instruments to promote economic growth or stable prices.

• By reducing fund rates, the massive unemployment rate is reduced, Its inflation rate also will be reduced. Its decline in the rate of the fund helps make lending expenditures low. These individuals would also borrow huge amounts of money to satisfy their inflation market demands. The Taylor rule's approximation could provide an accurate fiscal policy standard.  

• In terms of short-lasting bond yields, long-term interest rate increases, and other asset values, one such expansionary fiscal policy forms private industry expectations often  Unless interest rates are reduced, asset rates go up. These long-term plans help to reduce the impact on strategies and objectives and the report will develop predictions to help stop predicted rising inflation and contribute to the future interest rates decrease.