Question

we know that United States is at least using both monetary policy (by lowering the interest rate to be 0%) and fiscal policy (by having 2 trillion USD ready for spending on infrastructures).

Given the current condition with the corona virus pandemic still ongoing, and the lock down has not been lifted,

1. How successful do you think the monetary policy (only) would be? and why?
2. How successful do you think the fiscal policy (only) would be? and why?
3. How successful is the combination of both monetary policy and fiscal policy? and why?
4. Should the government consider quantitative easing? and why?

Answer 1

1) The corona virus pandemic has shaken the U.S. economy. To help this situation caused due to the COVID-19, the Fed has opted for expansionary monetary policy. The two expansionary monetary policies opted by Fed are open market operations; and reserve requirements. The Fed restarted quantitative easing with the buying of $200 billion in mortgage-backed securities and $500 billion in treasuries. It will increase the money supply with the goal of attaining low inflation and sustainable growth in the economy.The Fed on 12th March expanded massively the reverse repo operations, with an addition of $1.5 trillion of liquidity for banking thus indicating an extension of the amount of short term loans to banks to keep stability in the money markets and permitting the banks to have more cash on hand.
2) President Trump on March 6, 2020 approved spending bill for $8.3 billion for fighting the pandemic, currently termed to be the "Phase One" for the stimulus efforts. House of Representatives in U.S. approved an aid package totalling $2.2 trillion including a fund for $500 billion for assisting the hard-hit industries and a up to $3,000 direct payments of to millions of families in the country. A broad fiscal policy can ensure continuous and broad access to safety-net programs, provide income support for the households, giving the incentives for employers for avoiding the layoffs, provide loans to small businesses, and giving liquidity cushions to firms and households for stimulating the economy
3) U.S. economy need an immediate coordination between fiscal and monetary policy. It is vital that policymakers must rapidly act to make strong fiscal measures to lessen the damage, both to the overall U.S. economy and millions of Americans. The response of fiscal policy must be both quick-acting and aggressive because it can act much more quickly by getting money into the hands of people’s within weeks or months.
4) Open market operations also abbreviated as OMO) refer to the purchasing of government securities in the open market for the purpose of expansion of the amount of money in the banking system, facilitated by the Federal Reserve (Fed). The Fed restarted quantitative easing with the buying of $200 billion in mortgage-backed securities and $500 billion in treasuries. It will be beneficial because it will increase the money supply with the goal of attaining low inflation and sustainable growth in the economy.