Econ reading Assignment Example | Topics and Well Written Essays - 750 words

Econ reading - Assignment Example On the contrary, Fiat money is the one that does not have intrinsic value. Fiat money may be utilized upon government decree. On the other hand, demand deposits are account balances in a bank that depositors may obtain via writing a check upon request. Therefore, demand deposits should be included in the stock money in order to measure the value of money in the stock (Mankiw, 2011). The U.S Federal Reserve System acts as a central bank, it sets monetary policies in an economy. The Federal group is appointed by the president upon senate approval. Fed can increase the amount money in circulation through open market operation, whereby, Fed can make dollars and utilize them to buy bonds this led to an increase the amount of money in circulation (Mankiw, 2011). On the contrary, banks do not hold 100 reserves because they lend some money to earn profits. The relationship between amount of reserves and amount of money in the banking system a rises because banks accepts deposits from the pub lic and lend out some deposits while ensuring proportion bank reserve is maintained (Mankiw, 2011). If bank A has a leverage ratio of 10, while Bank B has a leverage ratio of 20 whereby, similar losses on bank loans at the two banks cause the value of their assets to fall by 7 percent. The above statement indicates that bank B showed a larger change in bank capital than bank A because its capital value declined twice as much as bank A. However, the two banks remained solvent because they can be able to meet their financial obligation. Connectively, discount rate is an interest rate charged by Fed to commercial banks when advancing loans, when Fed raises discount rates, the amount of money in circulation decreases (Mankiw, 2011). Discount rate is the interest rate charged by Fed to commercial bank on borrowed funds, when Fed raises the discount rates, bank reserve decrease this in turn causes the cost of borrowing to increase. This discourages borrowing and consequently reduces the a mount of money in circulation (Mankiw, 2011). . On the other hand, a reserve requirement is the amount of funds that a bank should retain after advancing loans. Whereby, an increase in reserve requirement causes an increase in reserve ratio, this in turn leads to a decrease in money supply. Additionally, Fed can not perfectly control the supply money because it does not have control of the amount of money held in the pockets of households. Secondly, Fed does not have control of the amount of money advanced as loans by the banks (Mankiw, 2011). 2.) Answer Questions for Review #1 in the middle of page 666 The value of money may be affected through increasing price level. This is because the money tends to lose its value this further reduces the purchasing power of money. According to the quantity theory of money, an increase in quantity of money leads to an increase in inflation rates. In above connection, nominal variables are those measured in monetary terms while real variables are those that can be measured in physical terms. According to the principle of monetary neutrality, nominal variables may be affected by changes in quantity of money. Inflation is like a tax in the senses that when government print money, the amount of money held by people losses value due to increase in money supply (Mankiw, 2011). According to Fishers effect, an increase in inflation rate causes real interest to fall. On the hand, nominal interest rate increases. The cost of inflation may involve menu cost that causes the company to adjust its prices such cost of printing new catalogues, advertising to mention just but a few. The most important cost for the U.S economy is inflation cost because an increase the tax burden

ECONOMIC ADVISEMENT PAPER Research Example | Topics and Well Written Essays - 500 words - 1

ECONOMIC ADVISEMENT - Research Paper Example The unemployment rate reported from 1948 until 2013, on an average was 5.81 percent. The highest unemployment rate recorded in USA was in November of 1982 which was 10.83 percent and the lowest was recorded in May of 1953, which was 2.50 percent. In united state, the unemployment rate measures the people who are unemployed, from the labor force. (trading economics, 2013) The interest rate in USA is reported by the Federal Reserve. The interest rate last recorded in USA was 0.25 percent. From 1917 until 2013 the average interest rate was 6.81 percent. The highest interest rate recorded was in March 1980, which was 20 percent, while the lowest interest rate was 0.25 in December 2008. In the United States, the interest rate is decided by the combined decision of the Federal Reserve (board) and the federal open market committee (FOMC). The decision is made by the board on the basis of the recommendations, given by one or more regional Federal Reserve Bank. (united state interest rate, 2013) According to a report by the commerce department, there was an increase of 2.6 percent in the consumer income, in USA. The report says that the salaries and wages of the American labors have been increasingly growing since December 2004. Due the increase in the income, there is an increase in the consumer spending as well. The rise in the consumer income rate was due to improve in the wages and the salaries of the American employees. The bonuses and the compensation were given by many companies to their employees, before in the raise in taxes. The consumption rate of the consumer was raised up to 2.2 percent, which was more than the estimated rate. The increase in the per person income rate is more than the estimated, this shows that the American economy have improved more than the expectation. There is an increase in the payroll tax from February, which has decreased the