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How Monetary and Fiscal Policies were Implemented during the Recession - Essay Example

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The recession is a downward economic trend in the business cycle that is characterized by a decline in production and unemployment, whereby the household incomes and spending decline by a great margin. …
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How Monetary and Fiscal Policies were Implemented during the Recession
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How Monetary and Fiscal Policies were Implemented during the Recession

Download file to see previous pages... In order to curb this, the government of the United States, and the international monetary fund, took some micro and macroeconomic measures to curb this trend, which led to a great economic down turn. This was achieved by using some monetary and fiscal policies. The monetary process is the process through which the central bank and other money rendering institutions of a country controls the supply of money, the availability of money and the cost of money or the interest rate so that they can achieve a certain common objective. These objectives are done towards the growth and stability of the economy. The monetary policies can be either the contractionary or the expansionary objective. The aim of the expansionary policy increases the total supply of money in the economy, while the contractionary policies decrease the supply of money in the economy. ...
It is the mandate of the federal reserve of the United States to enact the monetary policies. Board of governors runs the Federal Reserve. The factors, which they considered and applied to curb inflationary tendencies, are the reserve requirements, discount rate, open market operations, and printing money. Most banks in many countries changed the reserve requirements to encourage more banks to start in order to increases the amount of money circulating in the economy. The central banks of these countries have the authority to change the amount that banks should hold in the central bank so that they can be given the right to operate. In the US, the Federal Reserve has the supremacy to set the quantity of the deposits that the associate banks can deposit in order to be given the mandate to operate. To curb the recession, the FED decreased the amount of reserve deposits. The motive was to encourage more investors in the banking industry therefore increasing the amount of money circulating in the economy. This monetary objective achieved its goal since more banks had more money at hand, which increased spending, and possibly inflation (East Tennessee State University web). The other monetary policy used was the discount rate. Discount rate is the discount on the rate of interest rate that the Federal Reserve charges on the banks on the money that they borrow from the Federal Reserve. The central banks decreased or lowered the discount rate during recession. Their objective was to encourage the banks to borrow money from the central banks at a lower rate to increase the amount of money circulating in the economy. This would in turn encourage ...Download file to see next pagesRead More
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