6.2

Faced with an instability of economic growth due to a recession or accelerated inflation, the Fed uses the open market operation to increase or decrease the available reserves of commercial banks, which, in turn, will affect the amount of money available in the economy. . In addition to open market operation, the Fed has other tools available to promote the growth, sustainability, and economic stability of a country. These tools have been used historically; an apt example was the 2008 mortgage debt crisis. 1. What is monetary policy, its role and its effects on economic fluctuations in the short and long term. Use the demand and supply model. 2. Explain each of the tools that exist in expansionary monetary policy and contractionary monetary policy. 3. Express in detail the effects of monetary policy, expansionary and contractionary, on income and the price level. 4. Using the premise presented as a basis, argue about the intervention of monetary policy as instruments to promote growth, sustainability and economic stability of a country. (Provides an example in detail.)