Principles of Economics.Monetary Policy and the Federal Reserve Essay

Investment and consumption moderated during the 2007 and 2009 recession. Government expenditure rear end adjoin Aggregate exact because it subjoins liquidity in the market. The regimen may operate below full employment when job seekers are more than available job hence end up accepting low wages. The multiplier can have a negative effect when people lose jobs as a result of governing body cut spending. This causes initial decrease in national income. The relationship between marginal propensities and multiplier is that an increase in MPC leads to an increase in multiplier. Similarly, increase in MPS causes a decrease in the multiplier (Farmer, 2008).2. Fiscal Policy 9/11 attack lead to decrease in aggregate demand, in United States. An example of a sector that was hit hard is entertainment and travel sectors. It also led to decrease in personal consumption. The attack ca apply an increase in equilibrium price levels. This is because there is an reverse relationship betw een Aggregate demand and equilibrium price levels.An Expansionary fiscal insurance policy and Contractionary fiscal policy is used to increase aggregate demand. Expansionary fiscal policy is a policy used during the recession to increase AD by increasing government spending or decreasing taxes.Contractionary fiscal policy is used during inflation in order to decrease AD by decreasing government spending or increasing taxes (Farmer, 2008). After September 11s attack, the government increased expenditure in contrary sectors such as national defense.3. Money and Banking Factors that led to the mortgage default crisis is much borrowings and flawed pecuniary modeling majorly based on an assumption that prices of homes only go up, greed and fraud.Mortgage defaults affected bestow banks in that their loans were not repaid leading to huge losses. In many cases, they got real estate that was valued off the beaten track(predicate) below what mortgage was when borrowers had a note. D efault of bonds income backed by mortgage loans was interrupted banks were left with unsought real estate (Friedman, 2010).Securitization is pooling different types of contractual debt. TARP is a program formed by the government of US to buy assets and equity from institutions that offer financial services in order to strengthen the financial sector. TARP opened a window of opportunity for banks to pay their own debt and acquire other businesses alternatively of lend money to private sectors. The federal official Reserve injected funds into the mention markets in order to dish up them lend again. It also reduced the target federal funds rate.Major provisions in the mole Street Reform and Consumer Protection Act include ability of Insurance which creates national Insurance Office that monitors aspects of the insurance industry and Consumer Protections that creates Consumer Financial Protection Agency which protects Americans from unfair financial products and services.4. Moneta ry Policy and the Federal Reserve The Federal Reserve System refers to the central banking system of United States. Fed was launched in receipt to a series of financial panics. Federal Reserve Bank of Atlanta covers the states of Alabama, Georgia and Florida, 74 counties in Tennessee, 38 parishes of Louisiana, and 43 counties of Mississippi. William H. Rogers, Jr is the current Chairman of this Fed. This fed should remain politically independent because its rate is opinionated by market and is not explicitly determined by the Fed. The target for federal funds is change by 0.25% or 0.50% at any given time. Fed give liquidity to banks to enable them gives credit in times of recession.Federal Open Market Committee is a committee in Federal Reserve System that is charged with the responsibility of overseeing the countrys open market operations. Fed should decrease their rates to help spur the economy of US. This is expansionary monetary policy (Axilrod, 2011).5. Free Trade I brave out free trade and the NAFTA. They are based on comparative advantage. Countries produce what they can export cheaply. US exports goods like corn and meat to Mexico. Some of goods imported into USA include snacks and processed fruits. However, despite the having the win of increasing growth and collaboration between countries, free trade has the cost of dumping goods into the country and destroying sister industries. Free trade should be restricted on some goods like natural resources.6. Foreign veer US dollar is currently losing value against the euro. This is because the European Union is finding solution to Euro crisis. Dollars are supplied by the Central Bank of USA. A dollar loses value when its demand goes down. For example, whenever US citizens buy products from Germany, the demand for Euro goes up against the Dollar.A falling US Dollar increases ones travel expenses. This is because has to use more dollars to buy a impertinent currencies which are expensive. H owever, a cheap dollar is bad for the US economy because it discourages exportation. A free afloat(p) exchange rate refers to a monetary system whose exchange rates are free to print due to forces of the market without intervention by the government (Friedman, 2010).ReferencesAxilrod, S. H. (2011). Inside the Fed monetary policy and its management, Martin with Greenspan to Bernanke (Rev. ed.). Cambridge, Mass. MIT Press.APA formatting by BibMe.org.Farmer, R. E. (2008). Aggregate demand and supply. Cambridge, Mass. National Bureau of Economic Research.Friedman, M., & Heller, W. W. (2010). Monetary vs. fiscal policy. forward-looking York Norton.Starr, R. M. (2011). General equilibrium theory an introduction (2nd ed.). New York Cambridge University Press.Source document