The central back in an economy is charged with the responsibility of controlling a nation's money supply to achieve full employment and stable prices. You are a technocrat in the central bank, who is drafted on a special committee to assess the implications of contradictionary monetary policies being pursued. The Scenario now facing Grossmania is this: “The national economy is sluggish as a result of tight contradictionary monetary policies over the past two years.” Required: 1. Recommend and explain three policy actions to control money supply that may turn the economy around.
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.
The central back in an economy is charged with the responsibility of controlling a nation's money supply to achieve full employment and stable prices. You are a technocrat in the central bank, who is drafted on a special committee to assess the implications of contradictionary
“The national economy is sluggish as a result of tight contradictionary monetary policies over the past two years.”
Required:
1. Recommend and explain three policy actions to control money supply that may turn the economy around.
2. Explain one reason why inflation can prevent a country from achieving stablility
3. Explain Why some Countries, such as Jamaica use a managed floating exchange rate system’ instead of one of the major exchange rate system?
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