1. The latest data published by the Federal Reserve (Fed) on the evolution of the M2 for the period 2010-2017, the money supply shows a substantial increase: a) Measure graphically what were the effects on IS-LM, AD-AS model, if the economy presents a labor market, as is the case, completely flexible, with no redundancy costs and extreme mobility (no rigidities) b) Use the quantitative theory to measure the effects of the trend you see in the monetary base on the US economy in the long term. What do you expect to happen with nominal interest rate? FRED - M2 Money Stock 16,000 14,000 12.000 10,000 8,000 6,000 4,000 2,000 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Shaded areas indicate U.S. recessions Source: Board of Governors of the Federal Reserve System (US) fred stlouisfed.org Billions of Dollars
Monetary Policy and Equation of Exchange
The monetary policy has been defined as the policy that is used by the Federal Reserve (the central bank of the US) or the central bank (the central bank of India is RBI) along with the use of the supply of money to accomplish certain macroeconomic policies. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.
Monetary Economics
As from the name, it is very evident that monetary economics deals with the monetary theory of economics. Therefore, we can say that monetary economics, is that part of economics that provides us with the idea or notion of analyzing money as a holding with its function, which acts as the medium of exchange, the store of value through which the buying and selling are done and also the unit of account. It also helps in formulating the framework of the monetary policy of a bank in an economy which ultimately results in the welfare of the people residing in that particular economy. The monetary policy of an economy also helps to analyze and evaluate the financial health of it.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
