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Monetary Policy & Financial Inst.

Please provide 5 pages with references to answer the following questions. This information will be use as informative guide to further assist will be useful for to develop better understanding with regard to the given topics.

Do you support the use of quantitative easing during a recession?

Your discussion should include but not be limited to the following issues:

1. Will quantitative easing lead to higher economic growth?

2. Will quantitative easing lead to higher inflation?

3. Why do you think governments that have invested in the U.S. dollar such as China are concerned about U.S. quantitative easing? Will quantitative easing lead China and other countries to invest less in the U.S. dollar in the future?

Solution Preview

Monetary Policy & Financial Institutions: Quanititative Easing During Recession

Monetary policy is one of the tools of the government to influence economic situation of a particular country. It is said to be a twin of fiscal policy which is also implemented for the same purpose but using different strategies. While the fiscal policy intends to improve a country's economic situation through government expenditures and taxation, monetary policy, through a country's central bank, aims for economic improvements through changing the money supply available in circulation.

Among the monetary tools utilized are changes in interest rates on loans (including loan requirements, policies, and procedures) and open market operations. The direction of the change depends on a country's economic situation. In a very active economy, as may have been caused by abundance of money supply available in circulation, the government ( through its Central Bank) does something to decrease money supply available in circulation such as discourage borrowings through higher interest rates and more rigid borrowing policies and procedures. As to open market operations, the government issues securities such as bonds to decrease money supply available in circulation. When the public buys the bonds offered, they would have lesser money in their pocket and therefore may decide to lessen its purchases of goods and ...

Solution Summary

Monetary policy and financial institutions are examined. Quantitative easing during a recession is determined.

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