Question

The Coronavirus COVID-19 pandemic and social distancing efforts to slow the spread of this virus have resulted in an unprecedented global economic downturn. Many governments around the world have implemented different fiscal and monetary policy responses with the goal of reducing the impacts of the recession on their citizens. Provide a short discussion (maximum of 3 paragraphs) about one specific policy intervention that interests you, which has been considered or implemented by the Government of Canada or another county. This intervention must relate in some capacity to the fiscal and monetary policy lessons discussed in this course. Please include a reference or URL to at least one news articles about the policy that was written by a credible news source!

Answer 1

https://www.brookings.edu/research/fed-response-to-covid19/

This is the measure taken by The Federal Bank of US in response to the deadly corona virus pandemic developing in US.

Federal funds rate: The Fed has cut its target for the federal funds rate, the rate banks pay to borrow from each other overnight, by a total of 1.5 percentage points since March 3, bringing it down to a range of 0 percent to 0.25 percent. The federal funds rate is a benchmark for other short-term rates, and also affects longer-term rates, so this move is aimed at lowering the cost of borrowing on mortgages, auto loans, home equity loans, and other loans, but it will also reduce the interest income that savers get.

Repo operations: The Fed has vastly expanded the scope of its repurchase agreement (repo) operations to funnel cash to money markets and is now essentially offering an unlimited amount of money. The repo market is where firms borrow and lend cash and securities short-term, usually overnight. Disruptions in the repo market affect the federal funds rate, the Fed’s primary tool for achieving its price stability and employment mandate. The Fed’s facility makes cash available to the primary dealers in exchange for Treasury and other government-backed securities. Before coronavirus turmoil hit the market, the Fed was offering $100 billion in overnight repo and $20 billion in two-week repo. It has greatly expanded the program—both in the amounts offered and the length of the loans. It is offering $1 trillion in daily overnight repo, and $500 billion in one month and $500 billion in three-month repo.

Direct lending to major corporate employers: In a significant step beyond its crisis-era programs, which focused mainly on financial market functioning, the Fed on March 23 established two new facilities to support highly rated U.S. corporations. The Primary Market Corporate Credit Facility (PMCCF) allows the Fed to lend directly to corporations by buying new bond issuances and providing loans. Borrowers may defer interest and principal payments for at least the first six months so that they have cash to pay employees and suppliers. But during this period, borrowers may not pay dividends or buy back stocks. And, under the new Secondary Market Corporate Credit Facility (SMCCF), the Fed may purchase existing corporate bonds as well as exchange-traded funds investing in investment-grade corporate bonds. These facilities will “allow companies access to credit so that they are better able to maintain business operations and capacity during the period of dislocations related to the pandemic,” the Fed said. Initially supporting $100 billion in new financing, the Fed announced on April 9 a massive expansion—the facilities will now backstop up to $750 billion of corporate debt. And, as with previous facilities, the Fed invoked Section 13(3) of the Federal Reserve Act and received permission from the U.S. Treasury, which provided $75 billion from its Exchange Stabilization Fund to cover potential losses.