Purchase Solution

Monetary and Fiscal Policy and Policy Debate

Not what you're looking for?

Ask Custom Question

1. Suppose you read in the newspaper that last week the Fed conducted open market purchases, and that on Tuesday of last week it lowered the discount rate. What would you say the Fed was up to? Describe the most likely economic condition of the economy.

2. What three tools can the Fed can use to change the money supply? Which tool is used most frequently? What are two limitations on the money expansion process?

3. Explain why incorporating money into our macroeconomic framework moderates the effects of fiscal policy. That is, how does the existence of the supply and demand for money moderate the effects of increased government spending?

Purchase this Solution
Solution Summary

The Federal Reserve's tools for economic management and their limitations. How fiscal policy is limited by the supply and demand for money.

Solution Preview

The Fed's three tools are the manipulation of the discount rate, the required reserve rate, and open market operations. When the Fed purchases securities, it increases the money supply. Lowering the discount rate or the reserve rate would have the same effect. So, for #1, the Fed is obviously increasing the money supply. It would do this to help the economy grow, so most likely the economy is experiencing a recession, or is giving indictions that it might enter one if steps are not taken soon.

The most powerful tool available is the reserve requirement. The reserve requirement is the percentage of money ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • policy activism versus policy rules

    This view was supported by Keynes that government must use fiscal policy to increase its spending and reduce unemployment. At the same time the government may use monetary policy to control inflation rate.

  • Should the Federal Reserve only focus on inflation?

    The role of fiscal policy is stabilizing the economy "Should the FED focus on only inflation"? This has been an ongoing debate in monetary policy.

  • Comparing Monetary Policy to a Fiscal Policy

    Lags in the operation of fiscal policy Of the five types of lags listed in the data and recognition lags are common to monetary and fiscal policy.

  • Inflation and Monetary Policy

    To reduce inflation rate, the government comes into the picture of the economy by making use of its tools - the fiscal policy and the monetary policy.

  • Tax rebates

    Tax rebates are a part of the government policy and hence a part of fiscal action.

  • GDP: Fiscal and Monetary Policy

    548704 GDP: Fiscal and Monetary Policy 1. Suppose that the real GDP is below potential GDP. Answer the two questions below. a. What fiscal policy tools could be used to stimulate the economy? b.

  • Monetary and fiscal policy to stimulate the economy

    650407 Monetary and fiscal policy to stimulate the economy Monetary and fiscal policy (collectively called demand management) can be used to stimulate the economy.

  • Monetary and Fiscal Policy for Wal-Mart

    457139 Monetary and Fiscal Policy for Wal-Mart Effects of Fiscal Policy Think about how fiscal policy can effect your firm. Please address the following questions: 1. Suppose the government imposes tax cuts for 95% of all households.

  • Policy Mix in Goods and Money Markets

    Mix: Expansionary monetary policy, no change in fiscal policy. Aggregate output increases, means the policy is expansionary fiscal policy.

View More Related Solutions