Fiscal Policy And Monetary Policy

2086 Words Aug 27th, 2014 9 Pages
Nowadays, economic growth and stability is the goal that governments aim to achieve. There are two main ways to achieve this purpose: fiscal policy and monetary policy. Monetary policy is a kind of macroeconomic policy lead by the central bank. Expansionary monetary policies can help boost the economy but it will cause inflation. There are two approaches to control money supply; there are price and quantity. Price represents interest rates and quantity means amount of money quantity. After financial crisis, U.S. interest rates already reached a low point. As a result, the only effective way to boost the economy was by increasing money supply. In other words, the U.S. government would printed money and bought bonds in the open market. New funds would entered the open market to boost economy, that is called “Quantitative Easing” monetary. Concern the U.S. dollar was the most powerful currency in the world, U.S. monetary policy could affect the whole world. There were three rounds of Quantitative Easing monetary in the U.S. In QE1, the Federal Reserve (Fed) purchased 1.25 trillion dollars of residential mortgage-backed securities, $ 300 billion long-term Treasury bonds and $ 175 billion agency debt purchases between December 2008 and March 2010.The U.S government injected capital to major banks in order to reduce the impact of the financial crisis. The Federal Reserve purchased $600 billion of longer-term Treasury securities in QE2 during the period of November 2010 to June…

More about Fiscal Policy And Monetary Policy

Open Document