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You have explored how the Federal Reserve carries out monetary policy. You also know that monetary policy involves the ​money supply​ and ​interest rates​. Now, it is time for you to see how effective...

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You have explored how the Federal Reserve ca
ies out monetary policy. You also
know that monetary policy involves the ​money supply​ and ​interest rates​. Now, it is
time for you to see how effective (or not) monetary policy is in action.
1) You will begin by writing down the definition of "monetary policy."
2) The specific action that you will explore is expansionary monetary policy. This is
when the Federal Reserve increases the money supply. Explain how increasing the
money supply affects interest rates. Then explain how expansionary monetary policy
affects consumption, investments, and the growth of the economy.
3) Now it is time to look at a specific monetary policy. You already know about the
ecession that began at the end of 2007. The Federal Reserve addressed this economic
downturn by ca
ying out expansionary monetary policy. Using the provided document
titled "Primary Rates," find the primary interest rate on November 1, 2007. The primary
ate is the interest rate available to financially sound banks. To find the primary rate on
November 1, 2007, go to the "Primary Rate" column and the row marked "01-Nov-07" in
the Boston column. Write down this interest rate. Next, locate the primary rate on
October 29, 2008 (or "29-Oct-08" in the Boston column). This was the primary rate
almost one year later. Write down this rate. Examine the interest rates in between these
dates.
Click ​here​ for the "Primary Rates" spreadsheet.
4) In 1 or 2 sentences, describe the ​trend ​(or general direction) in the interest rates
etween November 1, 2007, and October 29, 2008, by answering the following
questions: Are the interest rates increasing or decreasing? Does the trend indicate that
the Federal Reserve is increasing or decreasing the growth of the money supply during
this time?
5) Next, examine consumption, investments, and Gross Domestic Product during 2008
and 2009, using the table below. The table shows the percentage changes in each
https:
albertleasd.owschools.com/media/o_eco_2016/5/ecou05c02p13d_1_final.xls
area. The changes are shown in quarters (or four parts) for each year. For example, the
first quarter is January, Fe
uary, and March.
Quarter and
Year
Change in
Consumption
Change in
Investments
Change in Gross
Domestic Product
Quarter 1,
XXXXXXXXXX
Quarter 2,
XXXXXXXXXX
Quarter 3,
XXXXXXXXXX
Quarter 4,
XXXXXXXXXX
Quarter 1,
XXXXXXXXXX
Quarter 2,
XXXXXXXXXX
Quarter 3,
XXXXXXXXXX
Quarter 4,
XXXXXXXXXX
Source:
http:
www.bea.gov/national/nipawe
TableView.asp?SelectedTable=310&Freq=Qtr&FirstYear=2008&LastYear=2010
In 2 or 3 sentences, explain the trend in consumption, investments, and Gross Domestic
Product. Are these areas generally increasing or decreasing during this time? In 1 or 2
sentences, explain if these trends show that expansionary monetary policy was effective
in XXXXXXXXXX.
6) Finally, examine consumption, investments, and Gross Domestic Product for three
quarters in 2010 using the table below.
Quarter and
Year
Change in
Consumption
Change in
Investments
Change in Gross
Domestic Product
Quarter 1,
XXXXXXXXXX
Quarter 2,
XXXXXXXXXX
Quarter 3,
XXXXXXXXXX
In 2 or 3 sentences, explain the trend in consumption, investments, and Gross Domestic
Product. Are these areas generally increasing or decreasing during these quarters? In
1or 2 sentences, explain if these trends show that expansionary monetary policy was
effective beginning in 2010.
7) There were other actions (including expansionary fiscal policy) that occu
ed during
these times and could also have contributed to economic performance. For this project,
assume that the changes in consumption, investments, and GDP occu
ed (at least in
part) from monetary policy. In 3 or 4 sentences, compare the trends in XXXXXXXXXXto the
trends in 2010. Next, provide an explanation for the differences in these trends, as by
discussing the role of timing or confidence.
Answered Same Day Jun 23, 2021

Solution

Komalavalli answered on Jun 25 2021
136 Votes
Monetary policy and interest rate:
1. Definition of Monetary policy
Monetary policy is defined as the management of money supply and interest rate in the economy and it is considered to be a demand side economic policy. Federal Reserve will implement expansionary monetary policy when there is downturn in the economy and follows contractionary monetary policy when economy is above potential GDP level.
2. Expansionary monetary policy:
Money market equili
ium graph
Graph of money market equili
ium indicates the relationship between the nominal interest rate and money supply in the economy. Interest rate is fixed at a point of money market equili
ium where demand form money supply equals money demand.
From above graph let us assume before implementing the expansionary monetary policy there is SM level of money supply and D M level of money demand, money market is equili
ium at i1 interest rate in the economy. Expansionary monetary policy will shift the money supply curve SM to the right and the new level of money in circulation is...
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