If you invest in an emerging market fund, your money is probably ...

[Zoey63294]

If you invest in an emerging market fund, your money is probably going to a commercial bank, rather than directly to nonfinancial businesses. Why? Why is that probably a good thing?
 
  What will be an ideal response?

Question 2

If the monetary policy curve is correct, then policy makers care only about inflation and not at all about aggregate output and unemployment. Comment.
 
  What will be an ideal response?

[Tonyam972]

Answer to Question 1

Developing economies are especially dependent on private lending by banks to overcome asymmetric information problems. Few businesses in developing economies can provide information of adequate quantity and quality to issue marketable securities. Banks have a profit incentive to compensate for the rudimentary state of accounting standards, enforcement of property rights, etc. Foreign investors share in the profits of competent bank intermediation.

Answer to Question 2

The monetary policy curve is a concise expression of monetary policy, highlighting policy makers' concern with inflation stability. Policy concerns other than inflation are represented by shifts of the MP curve, so that the real interest rate may change independently of the inflation rate. Moreover, the goal of inflation stability implies the need to be responsive to macroeconomic conditions in general, since the behavior of inflation is closely linked to changes in aggregate output and unemployment.