This article, written by Binyamin Appelbaum, assesses the Federal Reserve's relatively new plan to drive down interest rates and spur economic growth. The Fed will attempt to do this by in-vesting “$400 billion in long term Treasury securities over the next nine months, using money raised by selling its holdings of short-term federal debt.” This would ideally drive down long-term interest rates and stimulate consumer spending and investment. Coupled with a projected increase in con-sumer confidence, the end result would be to increase aggregate demand in order to eliminate the re-cessionary gap. Monetary policy is defined as a type of demand-side policy that is specifically carried out by a country’s central bank. It aims to influence aggregate demand by changing interest rates. Expan-sionary policy is monetary policy that is designed to closer a recessionary gap that is caused by in-sufficient aggregate demand. …show more content…
The Federal Reserve's policy-making committee said in a statement that it took this course of action because of the slow growth, continuing weakness in overall labour market conditions and elevated unemployment rate that re-mains characteristic of the recession. The plan would work by selling $400 billion in securities with remaining maturities of less than three years in exchange for roughly the same amount in securities with maturities longer than six years. Ideally, this would reduce long-term interest rates. When the Fed purchases long-term gov-ernment bonds, it creates competition in this market for the bonds, thereby driving up the price of the bonds