BUS 1104 Learning Journal Unit 4 PDF

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BUS 1104: Learning Journal Unit 4: Financial Markets and Monetary Policy Instructor: Mr. Steven KoReflect on the major topics of this unit and answer any three of the problems at the end of chapter elven in the text book. Be sure to consider alternative perspectives as you answer the problems.QUESTI...

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BUS 1104: Learning Journal Instructor: Mr. Steven Ko

Unit 4:

Financial Markets and Monetary Policy

Reflect on the major topics of this unit and answer any three of the problems at the end of chapter elven in the text book. Be sure to consider alternative perspectives as you answer the problems. QUESTION 2 The statutes of the recently established European Central Bank (ECB), state that, its primary objective is to maintain price stability. How does this chapter differ from that of the Fed? What significance does it have for monetary policy? Wikipedia- European Central Bank (Sept 2019). The European Central Bank is one of the largest and most important central bank in the world, established by the Treaty of Amsterdam. As stated in the above question, its primary objective mandated in Article 2 of the Statue of the ECB, is to maintain price stability within the Eurozone, its basic tasks set out in Article 3 of the Statute are to set and implement the monetary policy for the Eurozone, its basic tasks set out in Article 3 of the Statute are to set and implement the monetary policy for the Eurozone and also take care of the foreign reserves. On the other hand, the Fed created by congress in the 1913’s responsibilities include influencing the supply of money and credit, regulating and supervising financial institutions. It serves as a banking and fiscal agent for the US government. As indicated by historical actions, the Feds primary goal of monetary policy over the past 30 years has been to prevent high rates of inflation. How the ECB charter differ from the Fed It has an asymmetric inflation target as it doesn’t have to intervene if inflation is lower than 2%, but only stick to its mandate to maintain price stability. The Fed, unlike most Central banks is semi-decentralized. It is run by a Board of Governors and the Federal Open Market Committee. These bodies are appointed by the President of the U.S. and confirmed by the Senate. What significance does the ECB have for monetary policy? To maintain price stability as well as aiming at inflation rates of below but close to 2% over the medium term.

QUESTION 7 Suppose we observed an economy in which changes in the money supply, produce no changes whatever in nominal GDP. What could we conclude about velocity?

Since M=Money supply; P=price level; V=velocity; Y=real GDP. The equation of exchange is given by M*V= nominal GDP. With the change in money supply producing no change in nominal GDP, only happens if a complimentary change in velocity happens at the same time, such as M(G) * V(1/G) = nominal GDP. Meaning that velocity varies inversely and proportionally to change in money supply.( Course Hero.com) QUESTION 12 Four meetings in 2008 at which the Fed changed the target for the federal funds rate are shown below. January 30, 2008 March 18, 2008 October 8, 2008 October 29, 2008 Pick one of these dates and find out why it chose to change its target for the federal funds rate on that date. January 30,2008 The Fed decided today to lower its target for the federal funds rate 50 basis points to 3%. Financial markets remained under considerable stress as credit has tightened further for some business and households. Recent information indicates a deepening of the housing contraction as well as some softening in the labour markets. the committee expected inflation to moderate in coming quarters, but it deemed necessary to continue to monitor inflation developments carefully. Policy action was thought to promote moderate growth over time and to mitigate the risks to economic activity.( Course Hero.com)

Reference: Rittenberg, L. and Tregarthen, T. (2012). Macroeconomics Principles V. 2.0. Licensed under Creative Commons by-nc-sa 3.0 (https://creativecommons.org/licenses/by-nc-sa/3.0/

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