Discussion Question: The following two videos (total watch time ~ 15 minutes) sh
ID: 1197236 • Letter: D
Question
Discussion Question: The following two videos (total watch time ~ 15 minutes) show historical examples of Aggregate Demand and Aggregate Supply measurements during two notable periods from a Macro-economic point of view. Watch the videos. Combined with what you have learned in this chapter, what impact if any has the policy of 'Quantitative Easing' had on the United States aggregate demand/aggregate supply curves?
Video one:https://www.khanacademy.org/economics-finance-domain/macroeconomics/aggregate-supply-demand-topic/historic-ad-as-scenarios/v/demand-pull-inflation-under-johnson
Viedeo two:https://www.khanacademy.org/economics-finance-domain/macroeconomics/aggregate-supply-demand-topic/historic-ad-as-scenarios/v/cost-push-inflation
Please give me your help, sincerely, thank you so much.
Explanation / Answer
By Quantitative Easing (QE) the Fed has pumped trillions of dollars into the economic stream. The policy-making committee has concluded that there has been a substantial improvement in the outlook for labor market. It started way back in November 2008 and will be wound up this month. Instead of reducing interest rates, the Fed increased the quantity of money by going into financial markets to create assets and created new money to pay for them. Bonds are a kind of promise to pay certain sums of money in the near future. It can filter through the economy and reduce interest rate for borrowers. Lower rates enables households and businesses to spend more, thus boosting economic activity. QE provides a tool for getting rates lower for companies and households. It has the important effect on borrowing cost and has been responsible for the strengths of stock markets. On account of QE there has been a shift in the monetary base, and has increased dramaticlally since 2008 as Fed created new money to stimulate the US economy. The impact is that it kept interest rate low, stimulated job creation, and saved the US economy from another Depression. The first two rounds of QE raised the economic activity by around 3% and increased private sector jobs by two million. There is substantial evidence that QE has produced benefits.
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