What is the risk of a restrictive monetary policy

Reference no: EM133504338

Case: Faced with the Covid-19 pandemic, Former President Trump signed the bipartisan "Coronavirus stimulus relief bill" to assist tens of millions of homes affected by this pandemic. In addition to other measures, within the plan included direct payments of $1,200 directly to each adult who earns less than $75,000 per year or $150,000 for a couple and an additional $500 for each child; loans to companies so that they continue paying their workers' salaries; expansion of coverage for the payment of Unemployment pensions for workers furloughed due to the health pandemic, including part-time and self-employed workers; changes in student loan payments; different accounting rules for retirement; money for the health sector; extension of the deadline for making tax contributions until the month of June, among many other measures that entailed a monetary injection or increase in the circulation of money in the economy of 2.2 billion dollars (equivalent to 10% of the GDP of the USA!). Subsequently, the current President Biden signed an agreement that reinforced the previous law.

Answer all the questions asked, relying on information from reliable sources.

Present or mention the scenario of the aggregate supply and demand model that best an expansive fiscal policy like the one described in the topic. You can refer to the number of the graphic and the page in your textbook that the scenario is on, or copy and paste the graphic from your textbook.

Use the Phillips Curve to explain the short-term impact of the Covid-19 (coronavirus) relief and stimulus package on inflation and employment.

Question 1- What did the Presidents, Congress and the Fed intend to achieve through these fiscal policy measures?

Question 2- What was achieved initially (in the short term) with the economic stimulus package? In other words, what happened to aggregate demand? Explain the impacts by choosing the graph of the aggregate supply and demand model that best illustrates the increase in money supply that the implemented fiscal policy entailed. You can cite the chart and page number or copy and paste the chart from your textbook.

Question 3- On the other hand, what happened to economic growth in the short term? What happened to the unemployment rate? Because? Discuss the topic using the short-run Phillips curve.

Question 4- As the months passed, what was the impact on inflation? What has the Fed had to do to "cool down" the economy? What impact is pursued by raising interest rates? Explain the impact of the increase in interest rates on saving, investment and consumption.

Question 5- What is the risk of a restrictive monetary policy (i.e., of raising interest rates)? Discuss systemic banking risk.

Reference no: EM133504338

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