Targeting money stock, Suppose the Fed has already make a

Targeting money stock

Assignment Help International Economics

Reference no: EM1368231

1. (a) Suppose the Fed has already decided that it wants to target the money stock.

(1) Will the Fed come closer to its target by setting the interest rate at a given level, or will it do better by fixing the money supply through open market operations? In your analysis, think in terms of the Fed's horizon from one Open Market Committee meeting to another -- about 4-6 weeks. This analysis involves the relative stability of money demand and the money multiplier. Consider two alternative cases: (1) a stable demand for money allows the Fed to set an interest rate that ensures it will come close to the target money supply; and (2) an unstable demand for money.

(2) In your analysis, discuss the proposition that the Fed may need to target interest rates in the short run in order to meet its target money stock while in the long run it may need to pay attention to interest rates and bank reserves and currency growth. NOTE: Shifts in money demand may reveal themselves first in movements in interest rates -- and if the Fed wants to stabilize the economy, it should respond to shifts in money demand.

(b) Within the same general context, discuss why the Fed, if it wants to stabilize and grow GDP and employment, has chosen a quantitative easing (QE) approach by growing bank reserves though purchases of Treasury securities and mortgage-backed securities and the monetary base rather than an interest rate policy (presently QE2 policy is to purchase $85 billion per month of Treasury and mortgage-backed securities? Why has the European Central Bank (EU) and Japan followed the same policy? How does this process work to stimulate economic growth? Has the QE policy since 2011 worked to increase GDP growth and employment?

Reference no: EM1368231

Questions Cloud

Single product company and multiproduct company : Many corporation manufacture more than one product. What is the motivation to do this and explain how do rules for profit maximization differ between a single product corporation and a multiproduct corporation?

Determine effect of an event on the us economy : Provide some example of an event or incident that has taken place in the United State economy which has a major economic impact--be specific, e.g., 9/11 attack, natural disaster,

Determine how supply and demand affect prices of homes : You are between jobs and have decided to relocate to a city west of the Mississippi River, but you are unsure of what size or type of city you and your family can afford to live in.

Clarity for our nursing practice : Concept and theory analysis are powerful tools which help in giving clarity for our nursing practice. Concept and theory analysis are the vehicles used to explain to others key components of our profession.

Targeting money stock : Suppose the Fed has already make a decision that it wishes to target the money stock. Will the Fed come closer to its target by setting the interest rate at a given level, or will it do better by fixing the money supply through open market operations..

Collective bargaining : Show both and provide an argument for which you would support (for or against). Why is this your stance?

Middle-range nursing theory : Describe how a specific middle-range nursing theory has been or could be applied by nurse leaders or nurse managers to effectively deal with the administrative issue.

Values of the organization : Consider Ford Motor Company. Is the organization validating its values by its actions? Use the organization's website or other published information to define the values and explain your answer.

Calculate the percentage change in index : The customer price index is a fixed weight index. It compares the price of fixed bundle of goods in 1-year with the value of the same bundle of goods in some base year.

User Account

All Pages