Money Supply and the Federal Reserve

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Date Fiscal policy is usually trying to stimulate the economy as much as is possible through such things as lowering taxes , spending on programs and ignoring account deficits . Economic expert (economic expert , 2009 , describes recession as a reduction of a country 's HYPERLINK "http /www .economicexpert .com /a /Gross :National :Product .htm " Gross National Product in two successive quarters a situation mostly caused by economic shocks and can culminate into HYPERLINK "http /www .economicexpert .com /a /Economic :depression .htm " economic depression if not mitigated first enough like the

HYPERLINK "http /www .economicexpert .com /a /Great :Depression .htm " Great Depression of 1930s . In case of recession therefore , the economy initially show signs of slowing resulting into fall in stock 's prices and resultant domino effect due to perceived going bad ' of loans on them (economic expert , 2009

As a chief loan officer , I would recommend to the Federal Government and the Federal Reserve to adopt policy strategies aimed at expanding government spending and cut taxes during recessions with an aim of increasing the aggregate demand . My policy therefore will be : Lowered taxes , increased government spending , and high interest rates . This can be shown graphically as r

br LRAS

MS

r2 SRAS

r1 MD2 AD2

MD1 AD3 AD1

Quantity of Money YLR Y Quantity of real output

The strategy would be effective since during recession revenue reduces coupled with reduced income which prompt increase money demand from MD1 to MD2 and increased interest rates . There will also be...