The central bank of a country is having trouble with its economy, and the financial market wants to know what you think should be done. The bank cut its policy interest rate to the effective lower bound, which wasn't low enough to stabilize the economy. What would you tell this central bank to do, based on what the Federal Reserve did during the financial crisis of 2007–2009?
Functions of the Federal Reserve System
The Federal Reserve System looks after the financial activities and operations of the banking system. It is the apex body that has complete control over the banking regulations. All the guidelines regarding the banking system, money supply, and formulation of the monetary policy come under the purview of the Federal Reserve System. The New York Fed also helps in drafting the monetary policy and supervising the financial system.
Elastic and Inelastic Markets
Measuring the change in percentage of an economic variable with respect to change in a different economic variable is known as elasticity. This change in percentage results in a change in price concerning changes in other factors. In simple terms, when one factor brings a change to another factor, it is called elasticity.
The central bank of a country is having trouble with its economy, and the financial market wants to know what you think should be done. The bank cut its policy interest rate to the effective lower bound, which wasn't low enough to stabilize the economy.
What would you tell this central bank to do, based on what the Federal Reserve did during the financial crisis of 2007–2009?
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