Monetary policy in the United States comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates–the economic goals the Congress has instructed the Federal Reserve to pursue.” (“Federal Reserve Board”, 2021).
Any type of change in monetary policy will affect GDP. Monetary policy impacts employment and inflation, by influencing the availability and cost of credit in the economy. (“Federal Reserve Board”, 2021).
With the availability of credit, businesses can purchase additional supplies, land or equipment increasing the opportunity to grow their profits. Increased profits offer higher wages or boosted employment. These changes introduce more money into the economy. Consumers start to spend money on both goods and services daily to keep companies profitable.
Have the Federal Reserve’s countercyclical monetary policies been effective in moderating business cycle swings? Justify your response.
A countercyclical policy refers to the steps taken by the government that go against the direction of the economic or business cycle. In a recession or slowdown, the government increases expenditure and reduces taxes to create a demand that can drive an economic boom. (Shine, 2021). I would imagine If you asked the Fed’s they will tell you this policy is effective. However, many economists believe that by attempting to fix the problem it creates more problems and adds to the instability of the economy. (Kliesen, 1993).