Answer to Question #65628 in Macroeconomics for James
Monetary Policy Responses were aimed to influence the level of economic activity by increasing the money supply. The Fed lowered the discount rate and bought debt from financial institutions providing them money instead of debt that had uncertain value. The increase in monetary base by assets purchasing programs had to ramp up lending. However money supply multiplier was negative. Hence, despite the biggest expansion of bank cash reserve, loans from commercial banks declined as a result of insufficient bank capital in the Great Recession.
Therefore, GDP multiplier that was dwindling near zero and negative money supply multiplier nullified the basis for fiscal and monetary policy.
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