The Fed and Monetary Policy
Analysis and Comparison to Fiscal Policy
Your Name:
Step 1: Analyze each scenario. Answer the questions in complete sentences.
Scenario A Would the Fed address the scenario with expansionary or
contractionary policy? Explain.
College graduates are moving back
in with family in record numbers. This scenario would be addressed with expansionary policy
They are waiting longer than because it fights recession, increases money supply, and
previous generations to buy homes increases economic growth.
and start families. Data show
What is a specific monetary action the Fed might use in this
downward trends in new home
scenario? Identify the tool and how the Fed would use it.
building, mortgage applications, and
Explain how this would address the scenario.
the birthrate. Multiple markets are
complaining of falling demand. A The specific monetary action that the Fed might use is an
national supplier of home goods expansionary action. I think that decreasing the reserve
permanently shut down. The media requirement is the best monetary tool for this scenario
is calling babies born today part of because the Fed can allow people with high credit scores to
the “baby bust generation.” get loans from the bank. This would allow for more mortgage
Economists predict future school applications and an increase in market.
closings and labor shortages.
What is a specific fiscal action that Congress might use in this
scenario?
Expansionary action is the specific fiscal action because it
decreases taxes and increases spending.
Scenario B Would the Fed address the scenario with expansionary or
contractionary policy? Explain.
Reports of price increases for
everyday goods begin to dominate The scenario would be addressed with contractionary policy
the news. People are complaining because slows down inflation, decreases money supply, and
that their wages and salaries are not slows down economic growth.
keeping pace with the cost of living.
What is a specific monetary action the Fed might use in this
Most people being interviewed have
scenario? Identify the tool and how the Fed would use it.
jobs, and the national
Explain how this would address the scenario.
unemployment rate is low.
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However, many commonly remark A specific monetary action that the Fed might use is a
that they are looking for second jobs contractionary action. I think that increasing the reserve
or jobs that pay more because requirement will allow people to earn higher paying jobs and
basics like food and clothing cost make sure that they have enough money for necessities.
them so much more than a year
ago.
What is a specific fiscal action that Congress might use in this
scenario?
I think congress would use a contractionary action because it
increases taxes and decreases spending.
Scenario C Would the Fed address the scenario with expansionary or
contractionary policy? Explain.
The media report that an “epidemic of
the jobless” has emerged. Major This scenario would be addressed with expansionary
corporations and small businesses alike monetary policy because it fights recession, increases
are laying off workers. People are out of money supply, and increases economic growth.
work in record numbers and struggling
to find jobs. Some admit that they have
given up looking. Housing foreclosures
are increasing, while banks say they lack
the funds to approve new loan What is a specific monetary action the Fed might use in
applications or to adjust existing loans. this scenario? Identify the tool and how the Fed would use
Requests for unemployment, housing, it. Explain how this would address the scenario.
and nutrition assistance are at record A specific monetary action that the Fed might use is a
highs. Charity organizations are not expansionary action. The main tool should be decreasing
receiving enough donations to meet the the discount rate so that people can borrow currency from
growing need in their communities. the bank.
Credit card companies say the average
debt balance is climbing while
repayments are falling behind. What is a specific fiscal action that Congress might use in
this scenario?
The fiscal action that congress might use in this scenario is
expansionary action because it decreases taxes and
increases spending.
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Step 2: Which type of policy, fiscal or monetary, do you think is more effective in today's U.S. economy?
Explain your perspective, referencing an event from within the past 10 years. Write at least one
complete paragraph.
I think that fiscal policy is more effective in today’s U.S. economy because it has a greater lasting effect
compared to a monetary policy. Government spending can help support current economic conditions
and promote a sustainable society. In the past few years there has been a slowing growth in Chinas
economy which created fiscal issues for countries with strong trade and investment connections.
Step 3: Check and then submit your work.
Unless Otherwise Noted All Content © 2022 Florida Virtual School.
FlexPoint Education Cloud™ is a trademark of Florida Virtual School.
