(Figure: Monetary Policy) Refer to the figure. Assume that the economy is initially at point Y in the graph. If the Fed takes the appropriate action with monetary policy, but overestimates how serious the recession is, then:
the Fed would overshoot and the economy would move to point W.

Monetary policy is the macroeconomic coverage laid down with the aid of using the imperative bank. It includes control of cash deliver and hobby price and is the call for aspect financial coverage utilized by the authorities of a rustic to gain macroeconomic targets like inflation, consumption, boom and liquidity.

Central banks have 4 principal economic coverage equipment: the reserve requirement, open marketplace operations, the bargain price, and hobby on reserves. 1 Most imperative bank additionally have loads extra equipment at their disposal.

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(Figure: Monetary Policy) Refer to the figure. Assume that the economy is initially at point Y in the graph. If the Fed takes the appropriate action with monetary policy, but overestimates how serious the recession is, then: the Fed would overshoot and the economy would move to point W.

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(Figure: Monetary Policy) Refer to the figure. Assume that the economy is initially at point Y in the graph. If the Fed takes the appropriate action with monetary policy, but overestimates how serious the recession is, then:
the Fed would overshoot and the economy would move to point W.