Does the Credit Crunch make monetary policy ineffective, is increased Gov spending the only alternative?

I'm sure we are all aware of the current economic "crisis", thanks in no small part to media sensationalism. The fact is that we are now in a recession. The Government appear unsure of a specific plan of how to escape this situation. My question is does the credit crunch mean that monetary policy, namely exchange rates and interest rates, are now ineffective? And if so is increased government spending the only feasible way for the government to bring us out of a recession?

Asked By: Party_Beast - 6/19/2009
Best Answer - Chosen by Asker
I wouldn't say monetary policy is ineffective at all. If you narrowly of monetary policy as just having to do with the setting of interest rates, then that line of thinking would be closer to the truth. It is sometimes stated by economists that monetary policy is good at combating inflation but not very effective at... More
Answered By: Big Mac - 6/19/2009
Additional Answers (1)
I'd agree that the credit crunch certainly makes interest rates less effective, but also the fact that they are so low means there is nothing more that they can do. I don't think exchange rates would be lowered as that would hurt american consumers and be politically unpopular. Raising the exchange rate would hurt GDP... More
Answered By: esp.eclipser - 6/19/2009
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