Adoption of Two Round Quantitative Easing by Federal Government
Following the economic slump of 1923, there was a voluminous printing and distribution of money to it, the concept of quantitative easing at play. The term quantitative easing refers to an unconventional monetary policy instituted by some central bank so as to stimulate the economy. This is usually stimulated by the failure or ineffectiveness of conventional monetary policies. It involves the buying of government bonds by the central bank as well as other financial assets using new money that the bank has not like in 1023 through printing but electronically created. The idea behind the move is to increase the money supply as well as the excess reserves at the same time of the banking system. Once initiated the financial assets of the goods bought is raised thus lowering its return. This is supposed to be maintained so long as the return does not rise above zero (Larry, 2009). This is however successful only when does not end up changing the goals of a monetary policy.
Quantitative easing is instituted when the short-term interests are close are at zero rendering expansionary monetary policies inapplicable. This is due to the inability to lower interest rates through the purchase of short-term government bonds. When such a situation arises, there is then need to invoke quantitative easing so as to stimulate the country’s economy (Bernanke, 2009).
Upon the inception of 2009, the US economy was facing deep crises. The economic crisis at the time was digging its teeth deep into the US economy. The economy’s inflation was at its all-time low. Consumer spending had also taken an economy threatening dive. There were low employment levels, a combined scenario for an impend...
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...s have been known to have achieved great success leaving no doubt that QE2 will achieve the same outcome if not outdo it predecessors.
QE2 is thus the necessary evil that America has been awaiting since the economic crush set in. with this stimulus, the economy will rise again to its former glory. It may be slow, thus the current criticism, but nothing less would be expected in such desperate times. The desperate moves are thus envisaged, so is their eventual benefits.
Cited Works
Bernanke, Ben, “The Crisis and the Policy Response.” Federal Reserve, 13, Jan. 2009. From;
http:// www.federalreserve.gov/newevent/speech/bernanke200900113a.htm
Elliot, Larry, “Guardian Business Glossary: Quantitative Easing.” The Guardian, Web. 8 Jan.
2009.
Flanders, Stephanie, “Is quantitative Easing Really Just Printing Money?” BBC News, Web.
12:59 UK time, 18, Feb. 2009.
-2. The background of the financial crisis.—what kind of monetary policy the federal reserve made?
This paper aims to discuss the Short-Term and Long-Term Impacts of the Great Recession and
Quantitative easing (or just ‘QE”) is a program carried out by the US central bank, otherwise known as the Federal Reserve. It is an unconventional program designed to artificially stimulate markets in recessionary periods via printing new money into existence to buy up particular monetary instruments. Purchasing these instruments works to push the interest rates large banks pay the Fed down to nearly zero in order to loosen up credit (currently 0.25%), as well as push down yield rates on US treasury bonds in order to keep the interest on the US National debt feasible. Since the housing collapse of 2008 (otherwise known as the ‘Great Recession’) the Fed has been purchasing up these toxic mortgage backed securities and...
Quantitative easing is an unusual form of policy used when interest rates are near 0%. Banks rouse the nationwide financial system when usual monetary policies have become ineffective. In recent decades the government Central bank has argued they are the government’s most important financial agency.
In this paper I will explain which of the monetary tools available to the Federal Reserve are most often used and the reasons for that. I will also describe how expansionary activated conducted by the Federal Reserve impact credit avilaiblilty, the money supply, interest rates and security prices, and to conclude I will show the result of the transactions in the form of a balance sheet supposing the Federal Reserve
In conclusion, the current macroeconomic situation in the United States is characterized by moderate growth because of better economic conditions that were brought by the events of 2013. The country has experienced moderate economic growth since the 2008 global recession but has shown real signs of momentum. While the country is not concerned about recession or inflation, the rate of unemployment is still a major challenge despite improved consumer and business confidence. As a result, the Federal Open Market Committee or Federal Reserve System needs to adopt fiscal and monetary policy initiatives that help address the unemployment issue and promote high economic growth.
In the year 2001 the Discount Rate was steadily decreasing. This indicated that the Fed was trying to get commercial banks to borrow more resources. This is part of the easy money policy, in which bank loans become more available as well as less expensive thus making them more attractive. This would increase demand and employment. The easy money policy is acted on when the economy is on or near a recession and unemployment is high.
Every few years, countries experience an economic decline which is commonly referred to as a recession. In recent years the U.S. has been faced with overcoming the most devastating global economic hardships since the Great Depression. This period “a period of declining GDP, accompanied by lower real income and higher unemployment” has been referred to as the Great Recession (McConnell, 2012 p.G-30). This paper will cover the issues which led to the recession, discuss the strategies taken by the Government and Federal Reserve to alleviate the crisis, and look at the future outlook of the U.S. economy. By examining the nation’s economic struggles during this time period (2007-2009), it will conclude that the current macroeconomic situation deals with unemployment, which is a direct result of the recession.
In normal times, the monetary authority (usually a central bank or finance ministry) can stimulate the economy by lowering interest rate targets or increasing the monetary base. Either action should increase borrowing and lending, consumption, and fixed investment. When the relevant interest rate is already at or near zero, the monetary authority cannot lower it to stimulate the economy. The monetary authority can increase the overall quantity of money available to the economy, but traditional monetary policy tools do not inject new money directly into the economy. Rather, the new liquidity created must be injected into the real economy by way of financial intermediaries such as banks. In a liquidity trap environment, banks are unwilling to lend, so the central bank's newly-created liquidity is trapped behind unwilling lenders.
In 2009, the United States economy began to recover from the Great Recession. To aid in the recovery, the newly elected president Barak Obama created the American Recovery and Reinvestment Act better known as the second of two “Stimulus Packages.” Pa...
When an economy is in a recession the government has to act differently in order to increase demand and help businesses survive. The money supply method of the monetary policy is a good idea in theory but because of the current economic crisis, banks don’t feel secure enough to lend out there money as the return isn’t guaranteed.
The United States’ economy has slowly been recovering since the Great Recession ended in 2009. The country’s gross domestic product has increased steadily since the end of the recession (1). The consumer price index has slowly increased as well (2). The civilian unemployment rate has decreased significantly from its peak of 10.0% in October of 2009 (3). It has not decreased smoothly; rather, there were many small spikes caused by several short increases in unemployment each year (3).
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
In the study of macroeconomics there are several sub factors that affect the economy either favorably or adversely. One dynamic of macroeconomics is monetary policy. Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus the level of spending in the economy. “The goal of a monetary policy is to achieve and maintain price level stability, full employment and economic growth.” (McConnell & Brue, 2004).
Bernanke, B. (2009, January 13). The Crisis and the Policy Response. Speech at the Stamp Lecture, London School of Economic, London, England. Retrieved from http://www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm