Question

William McChesney Martin, who served as Chairman of the Federal Reserve in the 1950s and 1960s, is famous for saying that central banks should "take away the punch bowl just as the party is heating up".
What does this saying mean? Why wouldn't we want the "party" to get too exciting? What are the potential impacts of adding too much fuel to the economy?

Answer 1

Answer:

PART A

The saying means that it should remove the economic incentives when it has reached its peak in order to prevent it from impacting negatively on the economy.

PART B

(1) It can lead to Inflation.

(2) it can lead to reduced Productivity within the economy.

Explanation:Central banks all over the world are known to put incentives and Stimulus factors in place in order to help improve, resuscitate or sustain the economy in terms of crisis, but the impacts of the Incentives or Stimulus programs of the central banks can lead to certain negative consequences if not effectively monitored or removed when necessary.

SOME OF THE NEGATIVE CONSEQUENCES WHICH CAN ARISE IF THE INCENTIVES OR STIMULUS PROGRAMS USED TO SUSTAIN THE ECONOMY ARE NIT REMOVED EXAMPLES INCLUDE IT CAN LEAD TO INFLATION,IT CAN LEAD TO REDUCTION IN THE OVERALL PRODUCTIVITY WITHIN THE ECONOMY ETC.