Discuss the historical role of the Central Bank and its role in the Monetary Policy and Management of Aggregate Demand!
1. Monetary Policy:
a. Is any policy related to the supply of money?
b. Encompass various activities of the U.S. Treasury for those relating to foreign exchange operations and the receipt.
c. Comes from the policies of the nation’s central bank, the Federal Reserve.
d. Particularly those policies originating with its Board of Governors.
2. Historical Role:
a. The control of short-term “policy” interest rates.
b. The effective federal funds rate and the discount rate controlled by the Federal Reserve.
c. Sufficiently assure that such stabilization efforts would be successful.
3. Notes:
a. In the decades before the Great Recession, a growing majority of macroeconomists and policymakers agreed that the task of macroeconomic stabilization should be left almost entirely too central bankers.
b. Boosting the economy after negative shocks to aggregate demand and reining in a potentially overheating economy before accelerating inflation broke loose.
c. However, the last decade has seen this assurance that conventional monetary policy alone could ensure macroeconomic stabilization largely abandoned – and rightly so.
4. Quote:
a. Ben Bernanke said:
i. “[T]he role of an independent central bank is different in inflationary and deflationary environments. In the face of inflation, which is often associated with excessive [government borrowing and] monetization of