essay question and graph You are the Chairperson of the Federal Reserve, the dat

Question

essay question and graph

You are the Chairperson of the Federal Reserve, the date is 2008 and a recession is ahead. Using the monetary tool(s) of your choice what would you do? You need to graph a money demand and supply graph, an Investment graph, and a GDP graph to show how monetary policy effects GDP. You also need to use the money multiplier, MPC and the GDP multiplier on the GDP graph

once again this is Macroeconomic class, please follow all the requirmnents and answer correctly, graph it too! Thank you for your time.

Explanation / Answer

Foreseeing a recession ahead, I would spur the economy with expansionary monetary policy, adding money to the system and lowering interest rates. Cut in the interest rates will tend to increase overall demand in the economy. Lower interest rates makes it cheaper to borrow, encourages firms to invest and consumers to spend, It also reduces cost of mortgage interest payments and gives households greater disposable income and encourages spending. It makes exports cheaper and increases export demand. I would pursue a policy of quantitative easing to increase the money supply, use the money to buy government bonds from commercial banks which would increase the monetary base and cash reserves of banks, lower the interest rate that would encourage investment. Expansionary monetary policy should cause higher economic growth and lower the unemployment level.

Increase in Aggregate demand due to Expansionary Monetary policy:

Aggregate spending:

MPC and GDP:

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