To what extent can the recent fiscal monetary policies implemented by the fed government help in cushioning the current market situation? Will we be expecting another upcoming wave of downturn soon?
To what extent can the fiscal monetary policies implemented by the fed government help in cushioning the current market situation? Will we be expecting another upcoming wave of downturn soon?
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Background Info
Fiscal and montary policies can be implemented to help mitigate effects of a current economic situation.
Fiscal policy deals with taxes and government spending. To stimuate an economy, the government can cut taxes and increase governement spending. The spending can be in the form of rebates (consumer can spend more) or infrastructure projects (jobs are created and people will receive income).
Monetary policy deals with interest and exchange rate. To stimulate an economy, the central bank can lower interest rate. The cost of borrowing is lower since interest payble is lesser, this can promote spending by consumers and businesses.
What the Fed did
Lowered interest rate to nearly 0.
Quantitative easing, an uncoventional policy where the central bank introduces money by buying financial assets ($700 billion of Treasury ($500 billion) and agency MBS ($200 billion) securities).
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The policies cannot stop the ongoing disruption but it aims to help with the flow of money. If consumer or businesses do not spend, there is a break in the circular flow of the economy and that would be a problem.
The effectiveness also depends on the adminstration in dealing with the virus outbreak. If the government's measures are inept, it will sap out valuable resources to contain the problem.