Monetary Policy

Use (and synthesize) what you learned from class, from the textbook, , and from the TWO assigned articles to answer the following questions. Please explain your answers fully, using the concepts you’ve learned in class and the textbook as well as insights and descriptive details from the articles to support your answers. Please use your own words and don’t copy from the articles or the textbook.

The articles (a PDF containing the articles is included in the Assignment Instructions on Blackboard):

The first article:

Bernanke, Ben (November 5, 2010) What the Fed Did and Why. Washington Post Opinion

The second article:

Irwin, Neil (March 20, 2020) What the Fed Could Do Next to Try to Prevent an Economic Unraveling. New York Times

PLEASE submit a document that ONLY contains your answers. Just label them as Answers 1A or 2 B etc. The SafeAssign reports on Blackboard are not easy to understand when your documents contain text from my questions.

Answer the following questions about the November 5 2010, Washington Post opinion “What the Fed did and why” written by the then Fed Chairman, Ben Bernanke

1A. Mr. Bernanke argues that the national unemployment rate, level of inflation and the spare capacity in the US economy in 2010 justified an expansionary monetary policy. Describe his argument using what you have learned in this course. (75 words)

1 B. What do you understand by the term ‘spare capacity’ which is used in the article? Describe the precise relationship between spare capacity and the output gap? (50 words)

1 C. Use the AD-AS model and what you have learned about counter-cyclical government policy to fully explain in your own words the paragraph that begins with “This approach eased financial conditions in the past” and ends “in a virtuous circle, will further support economic expansion” (200 words)

Answer the following questions about the March 20th, 2020, New York Times article about “What the Fed Could Do Next to Try to Prevent an Economic Unraveling””

2A. Use the Investment Demand curve and the AD-AS model to explain the importance of good credit conditions. (50 words)

2B. Describe some of the measures the Federal Reserve has taken/could take in 2020 to maintain good credit conditions. (150 words)

2C. The article describes the steps the Fed could take to help state and local governments which are facing massive budget shortfalls. Use the AD-AS model to explain why it is so important to help state and local governments which are typically required to balance their budgets every year, including during a recession. (50 words).


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