Reference no: EM132586726

Assignment -

Section A -

1. Carefully present and discuss the quantity theory of money. Why is the control over the broad money more important than the control over the monetary base? With reference to Friedman (2005), discus the efficiency of monetary policy in mitigating the consequences of the financial crisis.

2. Outline and carefully explain the credit channel of the monetary transmission mechanism presented in the Bernanke and Blinder (1988) model. Explain how a drop in the broad money multiplier can affect the aggregate demand. What implications would this have for monetary policy?

3. Present and explain the factors which may affect the demand for reserves by commercial banks. Elaborate the connection between the demand for reserves and the broad money multiplier. Discuss how the change in the broad money multiplier would affect the outcome of the monetary policy.

Section B -

4. The short term interest rate is considered a conventional instrument of monetary policy. Explain how a change in the interest rate affects financial and asset markets. How do these changes subsequently affect the spending and investment decisions of households and firms?

5. In the absence of commitment technology, discuss how the central bank can obtain the gain of commitment in forward-looking New Keynesian models by redesigning its objective function.

6. Define and discuss the concept of the Seigniorage Laffer curve making use of the existing literature.