Hi , please i need a comment and question about the post below .
In times of a struggling economy the Federal Reserves need to take some of the following steps to help stabilize the economy:
- Allow banks to borrow more
- Allowed the Federal Reserve float to increase sharply
- Purchase government securities in the marketplace
- Arranged to provide dollars to foreign central banks
- Expand traditional Fed programs and implement nontraditional programs
- Aggressively use traditional Fed programs to provide liquidity
Bank borrowing is made more affordable by reducing the spread between the target federal funds rate and the primary credit rate. This means in general that banks can borrow much more cheaply from one another than from the Feds. When the inflation rate rises or falls, then the central bank will either increase or decrease nominal interest rates by slightly more than the change in inflation rates so that the economy can be returned to the target inflation rate. The Fed uses its tools to control the supply of money to help steady the economy. When the economy is falling, the Fed increases the supply of money to spur growth. On the otherhand, when inflation is threatening, the Feds reduce the risk by shrinking the supply of money. Interest rates and other factors can cause aggregate output to fall below potential output.
Note: When the Federal Reserve System was established, it was not intended to pursue an active monetary policy to stabilize the economy. It was only meant to prevent the supplies of money and credit from drying up during economic reductions.
https://www.minneapolisfed.org/publications/the-region/actions-to-restore-financial-stability
http://thismatter.com/money/banking/aggregate-expenditure.htm
http://www.investopedia.com/articles/08/fight-recession.asp
