Federal Reserve’s Monetary Policy

Write a response to the following in a minimum of 500 words:

Analyze how changes in the Federal Reserve’s monetary policy affect at least 2 of the 4 components of GDP (consumption, investment, government spending, net exports).

Justify your answer to the following question: Have the Federal Reserve’s countercyclical monetary policies been effective in moderating business cycle swings?

Submit your assignment.

Answer preview

Countercyclical monetary policies refer to the Federal Reserve’s responses when they perceive a warning economic activity. If the country’s economic growth is unstable, the government will attempt to boost the output and employment level in the economy by increasing the money supply. On the contrary, if inflation is perceived to be accelerating, the Federal Reserve will pressure interest rates and open market operations to restrict the economy’s collection and growth. However, the government has not been entirely effective in moderating business cycle swings despite using monetary policy tools (Kliesen, 2013). It is evident due to the financial crisis that impacts national and global economies regardless of the counter cynical monetary policies. It implies that the Federal Reserve lacks more significant margins within the policies to prevent and address the economic shocks. The onset of the financial market crisis significantly impacts the counter-cynical policies that address the economic downturns. Instead, preventive policies are utilized in mitigating systematic threats to economic stability, employment, and inflation.

[612 Words]

Federal Reserve’s Monetary Policy