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The federal reserve discussion

Business & Finance
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The Federal Reserve

When the economy is in a recessionary mode, what will likely be the actions by the Federal Reserve using monetary policy?

How is the velocity of money related to the level of economic activity?

 

 

 

Mar 24th, 2015

A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP). 

The government would use expansionary monetary policy in which an increase in the money supply and a reduction in interest rates are used to correct the problems of recession.  expansionary monetary policy can include buying U.S. Treasury securities through open market operations, a decrease in the discount rate, and a decrease in reserve requirements. 

the velocity of money is a measure of the economic activity of a nation.  It looks at how many times a unit of currency ($1 in the case of the United States) flows through the economy and is used by the various members of a society.  

the faster money travels (the higher the velocity of money) and the more transactions in which it is used, the healthier the economy, the richer the citizens, and the more vibrant the financial system.  The velocity of money tells you how efficient $1 of money supply is at creating economic activity.

Mar 24th, 2015

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Mar 24th, 2015
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