Question

Suppose a new and more liberal Congress and administration are elected. Their first order of business is to take away the independence of the Federal Reserve System and to force the Fed to greatly expand the money supply. What effect will this have on your organization and/or industry? What about interest rates and the general consumer? Would you support or oppose such an expansion? Why?

Answer 1

Expansion or increse of money supply in the economy will increase the amount of money available with the people in the country which will increase the aggregate demand of people which resulting in increse in production or output in the economy and consequently there will be increase in the GDP of the economy.Due to increase in supply of money consumer spending will increase and which will lead to the shifting of aggregate demand curve.

Increase in money supply will lead to the reduction of interest rate for the consumer and which will increase spending and aggregate demand of the consumer.

It will lead to increase in economic growth and decrease in unemployment but it will rise the rate of Inflation and for long run this policy can cause trouble for the economy so as per my view this policy should be used for short term period to supply amount of money in the economy in the event of their shortage only.