Author Question: What bureaucracy is responsible for monetary policy? How is monetary policy used to affect the ... (Read 36 times)

mydiamond · **on:** Jul 10, 2018

What bureaucracy is responsible for monetary policy? How is monetary policy used to affect the economy?

What will be an ideal response?

Question 2

Discuss some of the key areas of government deregulation during the last decades of the twentieth century, and describe two major regulations that have been put in place.

What will be an ideal response?

Question 3

Imagine the economy is slipping into a recession. What would a Keynesian advocate and why? Compare this approach to adjusting the discount rate to affect the money supply.

What will be an ideal response?

lkanara2 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: An ideal response will:
1. Identify the key bureaucratic component of the monetary system, which is the Federal Reserve Board.
2. Explain the key measures the Federal Reserve Board can deploy to affect the money supply, including raising or lowering the discount rate, which affects the interest rates that banks offer to consumers.
3. Specify how raising or lowering the discount rate affects the money supply and economic growth.

Answer to Question 2

Answer: An ideal response will:
1. Illustrate knowledge of the presidents who made deregulation a priority, including Gerald Ford and Jimmy Carter, as well as the sectors they deregulated: commercial airlines, railroads, motor carriers, and financial institutions, and more recently the airline and agricultural sectors.
2. Specify and explain two regulations, including the Airline Deregulation Act of 1978 and the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act, which was one of several deregulatory acts that contributed to the subprime mortgage crisis that began in 2007.

Answer to Question 3

Answer: An ideal response will:
1. Identify that Keynesian economic policy is a type of fiscal policy that is more concerned with high levels of unemployment than inflation.
2. Specify how increasing government spending and lowering tax rates encourages employment and investment. Note that when taxes are lowered, individuals and businesses will have more money to invest, which in turn increases the potential for new job creation and employment.
3. Note how this is different from using the discount rate to affect interest rates and the money supply because lowering interest rates reduces the cost of money and makes it more likely that banks will offer loans to businesses seeking to expand and thus increases the prospects for increased hiring and employment.