Economic Questions Speech or Presentation Example | Topics and Well Written Essays - 2500 words

Economic Questions - Speech or Presentation Example M1 is the narrowest measure of money which includes currency, checking account deposits and travelers checks. The M2 includes the M1 plus other assets that have check-writing features such as small-denomination time deposits, savings deposits and money market accounts, and money market mutual fund shares (noninstitutional). The M3 monetary aggregate is composed of M2 plus large denomination time deposits, term repurchase agreements, term Eurodollars and institutional money market mutual fund shares (Mishkin 57- 59). The Fed consists of 12 regional Federal Reserve banks, around 3000 member commercial banks, the Board of Governors of the Fed, the Federal Open Market Committee, and the Federal Advisory Council. Each of the 12 Federal Reserve banks perform the following: a. clear checks; b. issue new currency; c. withdraw damaged currency from circulation; d. administer and make discount loans to banks in their districts; e. evaluate proposed mergers and applications for banks to expand their activities; f. act as intermediaries between the business community and the Fed; g. examine bank holding companies and state-chartered banks; h. collect data on local business conditions; i. use their staff of professional economist to research topics related to monetary policy (Mishkin 369- 370). Those in favor of an independent Fed argue... This would add inflationary bias to monetary policy leading to an expansionary monetary policy and political business cycles. However, those in favor of less independent Fed want more accountability, transparency and democratic decision- making which affects the entire economy (Mishkin 386-387). DQ 1: Discuss the four players and how they affect the money supply process. First is the central bank, the main government agency which oversees the banking system and is in control of monetary policy. Second are the banks which serve as financial intermediaries as they accept deposits and grant loans. Third are the depositors who hold accounts in banks. The last players are the borrowers from the banks (Mishkin391- 392). DQ 2: Discuss the deficiencies of the simple model of multiple deposit creation. First, the model fails to take into account the behavior of all four players which could affect the money supply, especially the role played by the central bank. Also, it fails to predict the smaller expansion of deposits once depositors decide to hold more currency or when banks decide to hold excess reserves (Mishkin 409-410). DQ 3: Compare and contrast the Keynesian and Monetarist views on the money supply. Both schools of thought see the money supply as an important component of the economy. They just differ on the policy to address the fluctuations resulting from the increasing money supply. Keynesian economists believe that central bank can manipulate the levels of money supply, either by increasing or raising it to prop up the economy. Monetarist believes that the central bank should avoid controlling the money supply since it will lead to further fluctuations.