Question

Fed’s Kaplan says the monetary policy has reached limits for bolstering growth

Robert Kaplan ALBUQUERQUE -- Federal Reserve Bank of Dallas President Robert Kaplan called for “structural reforms and other fiscal policy” to help jump-start the U.S. economy, which he said would give the central bank more “operating room” to raise interest rates.
In a question-and-answer session at a community banking conference in Albuquerque, N.M., Kaplan said the nation’s second-quarter growth in gross domestic product was disappointing, though not surprising, given sluggish global demand. The U.S. economy grew 1.2% in the second quarter, less than the 2.6% that had been expected by economists in a Wall Street Journal survey. Kaplan said the numbers underscore the sluggish growth with which the U.S. and global economies have been since the financial crisis. Kaplan said accommodative monetary policy was causing distortions in the market. But he said the Fed must be cautious about raising rates when growth is still sluggish. He said monetary policy can’t do much more to kick-start the economy, and instead called for investments in infrastructure or more immigration to help replenish an aging workforce.

1. What type of policy are they using?
2. What is the policy goal for the economy?
3. Who is conducting this policy?
4. What are the tools or actions being used?
5. Were these policy actions effective? Evidence?

Answer 1

1. The Fed as mentioned in the above paragraph has been increasing the level of money supply in the economy and thus using expansionary monetary policy.

2. The policy goal of the economy id to increase the overall growth of the economy.

3. The Central Bank of the nation or Federal Reserve in case of USA is conducting this policy.

4. The Fed generally uses open market operating where government securities are purchased in the open market to increase the level of money supplied in the economy.

5. No, these policy actions were not effective as mentioned in the lines, "  monetary policy can’t do much more to kick-start the economy, and instead called for investments in infrastructure or more immigration to help replenish an aging workforce.' This shows that monetary policy has reached the limits to increase growth.