The Effectiveness of Monetary Policy During the 2007 Recession and the Relationship Between Money Supply and the Stock Market

Abstract

This review aims to answer several questions about the U.S. economy. First it will examine whether a relationship exist between the money supply and the stock market as these both are indicators of the health of the economy. Through a regression analysis of M2 levels and monthly closing prices of the S&P 500 index it is determined that no relationship can be established. Second, the review will perform a descriptive analysis of the Federal Reserve's monetary policies during the Great Recession. This analysis determined that overall, the Federal Reserve was effective in using monetary policy to positively influence the economy.