Bank Lending Signals a Strengthening Economy

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Source: “Bank Lending Signals a Strengthening Economy” by James C. Cooper, from Fiscal Times website, August 1st, 2011. https://www.thefiscaltimes.com/Columns/2011/08/01/Bank-Lending-Signals-a-Strengthening-Economy

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Homework 4 Due: April 23, 3019 Source: “Bank Lending Signals a Strengthening Economy” by James C. Cooper, from Fiscal Times website, August 1st, 2011. https://www.thefiscaltimes.com/Columns/2011/08/01/Bank-Lending-Signals-aStrengthening-Economy Thinking Critically: (10 points) 1. During the financial crisis of 2007-2009, the Fed attempted to stimulate the economy by taking actions to increases the money supply. How effective would these actions be if banks remained reluctant to make consumer loans while households remained reluctant to obtain loans? Explain. 2. Assume that the U.S. economy has recovered from the financial crisis and is growing rapidly. What monetary policy tools should be conducted to keep inflation low? Explain.
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HOMEWORK 4

Economics
Homework 4
Name of Student
Institution

1

HOMEWORK 4

2

Question 1
The Fed made efforts to increase money supply during the recession of 2007-009.
However, these efforts would not raise money supply if banks became reluctant to lend and
households were not willing to borrow (Axilrod). For money supply to increase money should be
circulating in the economy, and this happens if banks lend more while borrowers are willing to
borrow. The effective increase in money supply is achieved by influencing discount rate, reserve
ratio, and open markets operations. However, banks are used as a means of achieving this goal.
The Fed can reduce the reserve ratio to increase loanable funds that banks have. Ho...


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