Monetary Policy in 2007 Recession Essay Example | Topics and Well Written Essays - 500 words

Monetary Policy in 2007 Recession - Essay Example Notably, the monetary policy influenced the cost of credit and circulation of money. The heightened control of the availability of money promoted a healthy economy amidst the terrible crisis that threatened to reverse the gains the United States had achieved. The Federal Reserve Bank employed vibrant measures of boosting the economy by lowering the interest rates and skillfully controlling the amount of the bank reserves and offsetting the monetary shocks including the financial panic (Blinder & Zandi, 2010). In this respect, the monetary policy averted the economic collapse in the United States amidst panics over the solvency of numerous financial institutions. The Federal Bank adopted a comprehensive action plan that encompassed the lowering of the interest rates. The zero-rating of the interest coupled the decrease in the rates. The bank bought the Treasury bonds, as well as other securities in order to cut the long-term interest rates. In concerted efforts with the Federal Deposit Insurance Corporation that increased the deposit insurance limits, the Federal Bank spearheaded the actions of putting downward pressure on the long-term interest rates (Blinder & Zandi, 2010). The action was instrumental in facilitating the households and businesses to borrow funds. In this respect, the Federal Bank made the money available for the citizens and businesses to acquire during the severe 2007 economic downturn. In essence, the adoption of the monetary policy spurred aggregate demand and the revitalized real economic activities. Arguably, the policy cushioned the US economy from plunging into unprecedented inflation. The significant tightening of t he monetary policy by the Federal Reserve influenced faster economic recovery during the 2007 financial crisis (Carvalho, Eusepi, & Grisse, 2012). The policy shaped the aggregate demand in the United States.