(Discussion Post)

"Monetary Policy"

A country's two largest commercial banks, which make-up 70 percent of the country's commercial banking system, have each issued hundreds of thousands of 30 year loans to homeowners at an interest rate of 3 percent per year.Recently, the government has begun implementing an aggressive expansionary policy to encourage real economic growth.As a result of these actions, prices rise sharply and the inflation increases from 1 percent to 5 percent, which means the commercial banks' real interest rate on the 30-year loans fell from 2 percent to -2 percent.If the Federal Reserve Bank does not step in and bail the banks out, the banks will go under.In your opinion, should the FED step in and bail the banks out? Why or Why not, meaning what are the consequences of either decision?