This is an essay type question for 20 marks.

In the wake of the global Covid-19 pandemic, the monetary policy committee (MPC) of the Federal Reserve Bank has continuously decreased the repo rate in order to boost economic activity. You have been asked, as a third year monetary economics student, to advise the Governor of the Federal Reserve on such decision. In your answer, highlight the following: (i) mention the type of monetary policy that the Federal Reserve embarked on; (ii) point out the effectiveness of monetary policy, (iii) state the transmission mechanism that is most effective and why it could be considered and (iv) explain 3 costs and 3 benefits of continually decreasing the repo rate.