[Author’s Name]
[Institution’s Name]
Essay on Macroeconomics Principles and Theories
In principle, could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange?
Yes, Federal Reserve can conduct monetary policy through the purchase and sale of stocks, but one very big problem with this will be stocks are very volatile and are dependent too much on the performance of one single company.
Each purchase or sale of securities will directly affect the volume of reserves in the banking system and, in the process, the economy as a whole. Purchases will increase reserves and "ease" credit because the System will pay for the securities by crediting the reserve account of the seller's depository institution. Conversely, sales will reduce reserves and "tighten" credit because the System will collect by charging the reserve account of the seller's bank.....
