Actions Of The Government And The Increase In Prices

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of production. This results in the decrease of
the aggregate quantity supplied to decrease. This continues until aggregate
quantity demanded equal the aggregate quantity supplied and a period of short-
run equilibrium is established. The real GDP and the price level have both
decreased from the original long-run equilibrium level and the economy is
operating under the full employment level. At this point the U.S. economy is at
a recessionary gap and a monetary policy must be used to pull the economy from
the current recession.
There are three options that the Federal Reserve has to try and end the
current recession. The federal funds rate could be lowered, the discount to
banks could be lowered, or open market operations could be used. The most
effective of these three options is the use of expansionary monetary policy
through open market operations. The first step in this option is for the
Federal Reserve to start to purchase bonds from consumers. As the Federal
Reserve ...

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