Impact of Fed policy on World Economy

Impact of Fed policy on World Economy

The addition of money to the economy would always lower the interest rates on loans and other
market securities. In that case, there would be more money in the economy chasing fewer
commodities and if not well managed, the situation results to inflation. On the same note, the
increase in money supply to the economy leads expansion of businesses across the globe, it
promotes consumer spending and generally spurs growth of the economy. Increased government
spending raises demand on aggregate and consequently increases on the consumption hence
increase in production that fastens up recovery from recession. Tax cuts on the other hand
decreases rental income and increases on income amongst households hence recovery from
recession. The two fiscal policies when applied effectively ensures alternate ways to overcome
recession over a long term process. It also works on the reduction of unemployment that in most
cases if not well dealt with results to high inflation rates. The situation, however, is ideal and
does not exist in any economy. Whatsoever. The range for perfect equality takes a range of
between zero and one where one refers to absolute equality in an economy. Absolute inequality
means that one particular individual owns all the income, and everyone else has zero income

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levels. Price if control of what awaits the nation should be something to put into consideration.
The weakness of investment spending as a result of fear for unknown risks for instance in the
investment in securities and other equities would contribute to evolvement of the recession. The
focus on this revolves on the treasury bonds. The Federal policy in this case should major on the
fiscal policy and balance between unemployment and inflation.
There are so many challenges of fiscal policy that range from the increase in the price of
commodities. There is also the problems of financial instability that involves the devaluation of
the currency. The currency for the nation in this case the US fetches less on the foreign exchange
market, an indication that the nation would undergo financial constraints. The protection of the
investors from the inflation, in that case, acts as a motivation for them to invest in the bonds
unlike the case of the unprotected bonds that are subject to some risks for instance, risk of
inflation, risk of loss, and fluctuation of market prices. The bonds are available for purchase from
brokers, dealers, and treasury or from the bank, an indication that they are available for sale
anytime anywhere so long as they are available on the market. They do the above role via the
exposure of companies share prices more so those that have hiked their share prices so high
unlike what the market dictates. Short sellers can as well help in discovering the accounting
inconsistencies experienced on the stock market in the daily task of searching for the overvalued
firms in operation on the stock market.