Evaluate the effectiveness of monetary policy during the 2008 recession in the United States. Does the role of a monetary policy increase the volatility of growth in the monetary base and Real GDP in the U.S?

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Insha FatimaLv10

28 Sep 2019

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Monetary Neutrality is a theory in macroeconomics that states when the central bank conducts monetary policy, the central bank does not affect the real economy (e.g., the number jobs, the size and growth of output, the amount of investment). Instead, any change in the money supply would be offset by a proportional change in prices and wages. Monetary neutrality underlies the quantity theory of money. Suppose that throughout the fourth quarter of 2015, the Federal Reserve enacted a bond buying program. If monetary neutrality holds, then which of the answer choices is correct?

A. During the fourth quarter of 2015, the Fed conducted a contractionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply decreased, and U.S. nominal GDP decreased.

B. During the fourth quarter of 2015, the Fed conducted a contractionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply decreased, and U.S. nominal GDP was unchanged since it is not affected by changes in monetary policy.

C. During the fourth quarter of 2015, the Fed conducted an expansionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply increased, and U.S. nominal GDP increased.

D. During the fourth quarter of 2015, the Fed conducted an expansionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply increased, and U.S. nominal GDP was unchanged since it is not affected by changes in monetary policy.

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How does monetary policy affect the economy? Explain the fundamentals behind why changes in the money supply have real effects on the economy and the monetary transmission mechanism. Explain how monetary policy can be used to effectively stabilize output and smooth business cycles. Evaluate the role of monetary policy and how it affects the macroeconomy given the implications of the financial accelerator.

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For many years, the overall economic policy of the United States has been a balancing act between fiscal policy and monetary policy. Explain what is meant by the following:

(A). Fiscal policy

How is fiscal policy set?

Who sets fiscal policy?

How does this policy affect the economy?

(B) Monetary policy

How is monetary policy set?

Who sets monetary policy?

How does this policy affect inflation, the economy?