Question

Suppose that the Fed implements each of the policy changes you discussed in Problem 16-12. Now explain how the net export effect resulting from these monetary policy actions will reinforce their effects that operate through interest rate changes.

Short answer

It would result in a lowering of real GDP.

Step-by-step solution

introduction

The Fed can utilize the arrangement apparatuses of the open market activities, changes in the save proportion and the given rebate rate change.

explanation

If the Fed practices every one of the three arrangements like selling securities in the open market, after which expanding the discount rate alongside the expansions in the save proportion occurs, then it would bring about the bringing down of the genuine GDP. This is because of the way that it would bring about exorbitant financing costs bringing about an expansion in the inflow of global capital after which it would affect the dollar rate to increment and immediately a reduction in sends out at last prompting bringing down of genuine GDP.