Read the following descriptions of possible monetary policy in order to complete the worksheet. 1. If...

   

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Read the following descriptions of possible monetary policy in order to complete the worksheet. 1. If you use Loose-Money policy you are trying to grow the economy and create more jobs by increasing the money supply. In reality the FED would do this by lowering the reserve requirement, buying government bonds and securities through open market operations, and/or lowering the discount rate. 2. If you use Tight-Money policy you are trying to slow the economy down in order to fight inflation or prevent the economy from over heating and collapsing. The FED would do this by reducing the money supply. Money can be sucked out of the economy by raising the reserve requirement, selling government bonds and securities through open market operations, and/or raising the discount rate. 3. Moral persuasion can be used by the Federal Reserve Chairman when he reports to the American people on the state of the banking system and encourage people and banks to either save more or spend less. 4. Doing nothing the economy is perfect so we will do nothing. For each scenario, decide if the Fed would pursue a loose monetary policy or a tight monetary policy and what they might do with each of the tools they have at their disposal. Then explain why you think the Fed would pursue that particular policy. Remember that the Fed will not always take action and it only responds to major economic indicators such as GDP growth or lack thereof, inflation, housing starts (indicating an economy that is growing more houses →more purchases such as refrigerators, etc→more people at work.) 1. Stock prices have declined for the last two weeks. 2. GDP dipped from 3 percent to 1 percent in the last year. 3. The prices of cars have tripled in the last year. 4. GDP is growing steadily and prices are rising sharply. 5. The United States is experiencing both high inflation and high unemployment. 6. We are in a recession. Factory orders are down, and the economy appears to be slumping. 7. Consumers feel worried, inflation is low and spending is sluggish. 8. The index of leading economic indicators shows a strong move towards inflation. 9. The FED senses that people are not saving money. 10. Jobless rates are pushing 11 percent while the CPI has fallen from 8 percent to 2 percent growth. 11. The money supply appears to be tight, and prices are on the rise. 12. Prices are stable, and the GDP is growing at a 3 percent pace. Read the following descriptions of possible monetary policy in order to complete the worksheet. 1. If you use Loose-Money policy you are trying to grow the economy and create more jobs by increasing the money supply. In reality the FED would do this by lowering the reserve requirement, buying government bonds and securities through open market operations, and/or lowering the discount rate. 2. If you use Tight-Money policy you are trying to slow the economy down in order to fight inflation or prevent the economy from over heating and collapsing. The FED would do this by reducing the money supply. Money can be sucked out of the economy by raising the reserve requirement, selling government bonds and securities through open market operations, and/or raising the discount rate. 3. Moral persuasion can be used by the Federal Reserve Chairman when he reports to the American people on the state of the banking system and encourage people and banks to either save more or spend less. 4. Doing nothing the economy is perfect so we will do nothing. For each scenario, decide if the Fed would pursue a loose monetary policy or a tight monetary policy and what they might do with each of the tools they have at their disposal. Then explain why you think the Fed would pursue that particular policy. Remember that the Fed will not always take action and it only responds to major economic indicators such as GDP growth or lack thereof, inflation, housing starts (indicating an economy that is growing more houses →more purchases such as refrigerators, etc→more people at work.) 1. Stock prices have declined for the last two weeks. 2. GDP dipped from 3 percent to 1 percent in the last year. 3. The prices of cars have tripled in the last year. 4. GDP is growing steadily and prices are rising sharply. 5. The United States is experiencing both high inflation and high unemployment. 6. We are in a recession. Factory orders are down, and the economy appears to be slumping. 7. Consumers feel worried, inflation is low and spending is sluggish. 8. The index of leading economic indicators shows a strong move towards inflation. 9. The FED senses that people are not saving money. 10. Jobless rates are pushing 11 percent while the CPI has fallen from 8 percent to 2 percent growth. 11. The money supply appears to be tight, and prices are on the rise. 12. Prices are stable, and the GDP is growing at a 3 percent pace.

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Lets analyze each scenario and determine whether the Fed would pursue a loose or tight monetary policy 1 Stock prices have declined for the last two weeks The Fed might pursue a loose monetary policy ... View the full answer