Fed Expansionary Monetary Policy - 764 Words

Fed Policy Economists have been puzzled by the question of whether or not the Fed should begin its exit from expansionary monetary policy, primarily due to the reason that surrounds all policy change - there are benefits, and there are costs. The expansionary monetary policy essentially focuses on expanding the economy through increasing the GDP, and this is done through increasing output and employment through the lowering of interest rates. With the economy recovering slowly but surely, many economists believe it is in fact time for the Fed to exit from its expansionary monetary policy; however, there are underlying problems that still have yet to be addressed, and diverging from this policy will bury those problems deeper. The Fed†¦show more content†¦With higher reserves (money that the Fed gives banks to lend and accumulate profit in exchange for assets), inflation will increase because there is more money going around in the economy where the unemployment rate is low. In the current economy, the problem of unemployment has been mitigated through the expansionary monetary policy, but not to the greatest possible extent. A problem at hand is wage rates do not accommodate inflation. If the Fed abandons expansionary monetary policy, inflation rates would rise but not in accordance with wage rates. â€Å"Wage growth — by any measure — is far below its pre-crisis level†¦ makes no sense at all to tighten until we see wage inflation rise, not just from its current level, but several points higher† (Krugman, Nowhere near the exit). The existing minimum wage working labor force ultimately hinders the economy through their inability to contribute to consumption because their income is spent on the bare minimums required to survive. By increasing the minimum wage, transfer payments (money government pays out through programs such as social security) would decrease and tax revenues would increase, which would lead to an increase in r evenue, thus adding to the GDP. While it may be true that increasing the minimum wage In fact, â€Å"raising the minimum wage actually helps businesses by increasing productivity, boosting demand for new workers, andShow MoreRelatedShould Feds Continue with Expansionary Monetary Policy or Exit Strategy?863 Words   |  4 PagesOver the past few years, the Fed had been trying to heal the economy from the recession by lowering the interest rate near zero in order to raise the inflation, increasing the price of housing and household wealth. This will encourage more people to buy products or services, causing an increase in consumers spending. Based on the data given by the U.S. Department of Commerce today, the economy is now healing from the recession with the expansionary monetary policy. However, some people argue thatRead MoreExpansionary Policy1254 Words   |  6 PagesExpansionary Fiscal and Monetary Policies Macroeconomics: ECO 203 Professor Charles Aki September 1, 2013 The US economy has seen some detrimental changes over the past decade. These changes resulted in unsubstantial unemployment rates, fluctuating interest rates, unstable GDP, and an increase in taxes. The federal government has an obligation to citizens to respond to the changes in the economy that affect each household. Expansionary Fiscal and Monetary Policies are economic policies usedRead MoreThe Federal Reserve And Expansionary Monetary Policy1657 Words   |  7 Pagesgovernment can handle the economy in a recessionary period in one of two ways: expansionary fiscal policy or expansionary monetary policy. The sector of the government that handles the economy using these policies in a recession is the Federal Reserve. 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Critics of this plan argue aboutRead MoreEssay Expansionary Economic Policy1524 Words   |  7 PagesExpansionary Economic Policy David Gors ECO203: Principles of Macroeconomics Nick Bergan April 14, 2013 In economic terms, a recession is defined as a general slowdown in economic activity. In an effort to move the economy out of a recession, the government would implement expansionary economic policies. One action the government would take would include conducting expansionary fiscal policy. The other action taken would be conducting expansionary monetary policy. Both of these actions wouldRead MoreFiscal Policy And Monetary Policy1735 Words   |  7 Pageseconomic money better to improve our situation. Looking at the two expansionary which is fiscal and monetary policy to find out a way to find the economic. It is macroeconomic policy that pursues to enlarge the money supply to boost economic growth or combat inflation. One of the form is fiscal policy of expansionary policy, which comes in the method of tax cuts, discounts and increased government spending. Expansionary policies do come from central banks, which focus on cumulative the money supplyRead MoreFactors That Affect The Economic System1223 Words   |  5 Pages In monetary terms, a subsidence is delegated a moderate development or absence of development in financial movement; all together for the economy to escape the retreat, the legislature must execute expansionary monetary strategies. â€Å"The activities of government are grouped into three categories: allocation, redistribution, and stabilization. Stabilization and redistribution are conducted primarily through governments in all economic systems. Allocation is a microeconomic activity that is sharedRead MoreExpansionary Fiscal Policy And Expansionary Monetary Policy1496 Words   |  6 Pagesmove the economy out of a recession, the government would implement expansionary economic policies. One action the government would take would include conducting expansionary fiscal policy. The other action taken would be conducting expansionary monetary policy. Both of these actions would have an effect on such things as money supply, interest rates, spending, aggregate demand, GDP, and employm ent. Expansionary fiscal policy consists of change in government expenditures, or taxes, in order inRead MoreMonetary Policy And Its Impact On The Performance Of The Economy1161 Words   |  5 PagesThis paper will discuss the goal of monetary policy and its impact on the performance of the economy as it relates to such factors as inflation, financial yield, and business. Monetary policy affects all kinds of monetary and financial decisions individuals make in this nation, whether to get a loan to purchase another house or car or to start up a company, whether to expand a business and whether to place savings in a bank, in bonds, or in the stock market. Furthermore, because the U.S. is the largestRead MoreThe Federal Reserve System ( Fed )980 Words   |  4 PagesJustin Wolfers describes how the Federal Reserve System (Fed), also known as the central bank of the United States, can alter monetary policy to help the economy recover during downtimes and recessions. Although the Federal R eserve System is not technically a political institution, such as that of the Bank of Canada, after it was nationalized in 1938, with its overall responsibilities lying with a board of directors. In other words, the Fed does not stack the deck to assist either the Democrats or